Monthly inflation preview: the headline rate is set to rise markedly

HUNGARY - In Brief 08 Dec 2019 by Istvan Racz

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The November CPI-infation data is expected on Tuesday, December 10. In essence, the yoy headline rate is set to rise significantly on a fuel-price-related base effect, but no policy reaction whatsoever is likely to come from the MNB.More specifically, we expect the yoy headline rate to jump to 3.3% from the 2.9% reported for the previous month. This would have little to do with non-fuel inflation, which we expect at 0.1% mom in November, the same as one year earlier. Based on the wholesale prices of fuel in recent weeks, fuel retail prices should go up by a marginal 0.1% mom, but that compares to 4.7% monthly decrease in November last year, which represents a major base effect. As a result, the yoy rate of non-fuel inflation should be at 3.8% and that of fuel prices at 0.8% (the latter up from -4% last month).The more interesting part of the story is that the same kind of a base effect is set to appear again in December and to a lesser extent in January as well. As a result, the headline inflation rate should pick up to 3.8% yoy in December and to 3.9% yoy in January, without any further rise by non-fuel inflation. Our current main scenario is that the headline rate would then start to decrease slowly from February again, without ever exactly reaching or exceeding the MNB's 4% tolerance ceiling. Of course, there are upside risks, especially stemming from high wage growth and the forint's weak trend against EUR and USD. Any cooling of the economy would reduce those risks, but indeed, no deceleration at all was shown by the October industrial output (+6.5% yoy) or the October retail sales (+5.6%) growth data.But despite all the risks, we do not expect the MNB to tighten ...