Quite favorable inflation numbers for February

HUNGARY - In Brief 09 Mar 2021 by Istvan Racz

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The headline rate of CPI-inflation was reported this morning as 0.7% mom, 3.1% yoy, the latter up from a stable 2.7% yoy in each of the previous three months. This perfectly matched market expectation and almost perfectly matched ours. But more importantly, the report's details reflect a favorable outcome from the point of view of prospects for the next few months.First, the upturn of the headline rate was caused fully by rising fuel prices, an external factor. Non-fuel inflation was 0.5% mom, a bit less than last February's 0.6%, following the same pattern as in January, when monthly non-fuel inflation also fell by one decimal point from the same month of 2021. Yoy, non-fuel inflation fell to 2.9% yoy from January's 3.1%.Second, core inflation also edged down to 4.1% yoy from January's 4.2%, the same way as the MNB's adjusted core inflation fell to 3.4% yoy from 3.5% in the previous month. This suggests that neither January's increase in the excise taxes on tobacco products (a measure driven by common EU policy) nor the latest upturn by fuel prices generated any tangible spillover to core inflation so far.The policy consequences are quite clear: these numbers provide the MNB with no reason at all to tighten at the next rate-setting meeting on March 23. The headline inflation rate is likely to rise further, to around the current level of adjusted core inflation, in March, but that is once again based on increasing fuel prices only, as the domestic economy is just too weak to generate any significant inflationary pressure for the time being. The MNB is well aware of these short-term prospects, of course.