July CPI-inflation came out slightly below expectation

HUNGARY - In Brief 10 Aug 2021 by Istvan Racz

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The headline rate was 0.5% mom, 4.6% yoy, just slightly below the 4.7% yoy median of analyst forecasts (Portfolio.hu survey) and more significantly below our own 4.9% yoy forecast. The better than expected performance came from non-fuel items, where the monthly price increase fell to 3.8% yoy from June's 4.2% yoy. This fall also appeared in core inflation, which went from June's 3.8% yoy down to 3.5% yoy. As we said in yesterday's note already, the big drop from the June headline rate of 5.3% yoy was mainly the result of an extremely big base effect, and not so much of the easing of inflationary pressures. But even so, on the basis of these freshly reported numbers, it seems quite unlikely that the MNB would carry out another 30 bps base rate hike at this month's rate-setting meeting (August 24). Whether or not they will raise interest rates by 15 bps on this occasion is, quite frankly, a matter of taste on their part only. Proactivity and the front-loaded approach, about which they have talked a lot recently, would justify that smaller step, but neither July's CPI figures nor the current position of EURHUF would make it necessary. Between 350-355, the forint's position is quite strong, and even 355-360 would be a reasonably position, both from the competitiveness and from the price stability point of view. So the MNB could just wait with their next rate decision for the next inflation review in September. But they can equally carry out a small rate hike in August and keep the door open for another step in September.