June CPI-inflation marginally below expectation, no big deal for central bank policy

HUNGARY - In Brief 08 Jul 2020 by Istvan Racz

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The headline rate of CPI-inflation jumped to 2.9% yoy in June from 2.2% yoy in May, ending up just slightly below the 3% average analyst expectation. This anticipated sharp pick-up was clearly due to a 9.3% mom recovery by fuel prices (which were still down by 11.6% yoy), so it is essentially the direct consequence of the now usual oil price roller-coaster. Food prices, another partially non-core item fell by 0.6% mom mostly on the grounds of seasonality but rose by 7.8% yoy mainly for structural reasons.As a result, core inflation as per KSH estimates remained unchanged at 4% yoy, the MNB's adjusted core inflation measure did not move either from May's 3.5% yoy, whereas non-fuel inflation fell to 3.8% yoy from 4.1% in May. This means that in May and June together, the yoy rates of these three core inflation measures all fell by 0.3-0.6%-points.Should or will the MNB change policies in response to these numbers? No, they should not really and they are unlikely to do so. Last time, vice governor Virág expressly predicted a 0.15% further cut in the base rate/ sterilisation rate, to 0.6%, at the July rate-setting meeting (July 21), and they will most likely go ahead with this plan in the lack of any immediate threat to their intention to keep the adjusted core rate and the headline rate as well materially below 4%. Another part of the story is the exchange rate of course: EURHUF is currently killing time around 355, so it is kind of 'behaving itself', no threat seen from that side either, for the time being at least.