Mostly good news on CPI-inflation in June

HUNGARY - In Brief 09 Jul 2019 by Istvan Racz

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This morning's release of the June CPI-inflation data resulted in decreases by the yoy rates of three of the four key indicators, whereas the fourth one remained unchanged. Most importantly, the headline inflation rate fell to 3.4% yoy from the 3.9% yoy reported in May, and the MNB's main policy indicator, core inflation adjusted for indirect taxes, eased to 3.5% yoy from the previous month's 3.7% yoy. Unadjusted core inflation, KSH's measure, also fell to 3.8% yoy from May's 4%, whereas non-fuel inflation remained unchanged at 3.9% yoy.In sum, CPI-inflation dropped from the local peaks recorded in May, due to a correction by fuel prices. Other parts of the CPI continued to move upwards by the same speed as in May, but as food prices were a bit less favourable and all other prices more favourable than a year ago, the yoy rates of core inflation also fell moderately by both definitions.Going forward, the headline rate is likely to decrease further in July as well, possibly to 3.2% yoy, for the same reason as in June, i.e. the continued downward adjustment by fuel prices. It is likely to remain around that level until October if fuel prices do the favour and remain roughly unchanged at July's level, which is a question of course. However, there is a significant likelihood that the headline rate might rise markedly again in November and December, due to a base effect, as fuel prices dropped sharply, by 11.3%, in those two months of 2018, pushing the headline rate down by 0.8% point at that time. In our view, headline CPI-inflation may exceed the upper level of the MNB's tolerance range, possibly reaching 4.2% yoy, at the end of this year.Evidently, the MNB will not share ...