May CPI-inflation remained at peak level, MNB hardened tightening talk a bit further

HUNGARY - In Brief 09 Jun 2021 by Istvan Racz

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The headline rate of CPI-inflation for May was reported at 0.5% mom, 5.1% yoy this morning. The yoy rate was unchanged from April, ending up lower than the average analyst expectation of 5.2-5.4%.Fuel prices rose further by 1.7% mom, but their yoy increase moderated to 36.2%, from April's peak 39.2%, on the well-known base effect generated by crude oil prices. Thus the monthly rate of non-fuel inflation dropped to 0.4% in May, from 0.9% in the previous month. Bearing in mind that April's high non-fuel inflation was partially caused by an official measure to raise excise taxes on tobacco, it seems that a marked slowdown by the pace of forint depreciation can be indeed expected to have a moderating effect on domestic inflation already with a one-month lag (please, see our in-brief of yesterday on this subject).Importantly, MNB vice-governor Virág spoke again today, formally at a conference, but practically also reacting to the new inflation data, even though not mentioning them specifically. Essentially, he confirmed his mid-May statement about the start of a new tightening cycle, even making the message somewhat stronger. He said that the recent rise of core inflation reflects the existence of sustained inflationary risks, and the MNB will step up against this trend with utmost determination. Mr. Virág also said that the era of 'ultra-loose' monetary policy is over, but central banks may make a mistake by reacting to inflationary risks belatedly. Intending to avoid that mistake, the MNB will carry out an effective step to raise interest rates at the Council's June rate-setting meeting, which will be a start of its tightening course. Finally, Mr. Virág said that the Bank...