May CPI data out, MNB's tight policy course vindicated

HUNGARY - In Brief 11 Jun 2025 by Istvan Racz

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The headline rate of CPI-inflation surprised on the upside in May. Against 4.2% yoy expected by analysts (their median forecast), the actual number was 4.4% yoy, with 0.2% inflation in May alone. The yoy rate rose from 4.2% yoy in April. Non-fuel inflation backed up to 5.2% yoy from the previous month's 5%, i.e. to exactly where it was two months ago. However, core inflation was 0.3% mom, 4.8% yoy, the latter falling two decimal points from April and a total nine decimal points from March.Note: Year-on-year changes in percent; Sources: KSH, own estimates We have two comments to make on these results. The first one is that the MNB's tight policy course has been vindicated. Despite the weak economy, administrative price regulations and the strong forint, it is not that easy to push inflation down to the Bank's target range. This time, a key contributor to rising inflation was a 0.6% monthly increase in food prices, in which seasonal items (excluded from core inflation, like potato, fresh fruit and vegetable) took the leading role. The (one-time) impact of the price cap on food prices appeared already in April, whereas the expected impact of the similar cap on household goods will appear only in June.The other comment is that the May data was not all that bad in every respect. Half of the negative surprise (and of the rise from April) came from the fact that fuel prices did not fall quite as much as the high-frequency (actually daily) data reported by the privately run Holtankoljak.hu website suggested. The yoy rate of core inflation fell considerably in the last few months, which should be a positive sign for everyone who believes that core inflation is a better measure ...