September CPI data positively surprising, but there is a twist in the story

HUNGARY - In Brief 08 Oct 2019 by Istvan Racz

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The headline rate of CPI-inflation fell to 2.8% yoy in September from 3.1% yoy in the previous month. This has been the first below-target number since January. It is also a positive surprise, as the average of analyst expectations was 3% yoy, according to Portfolio.hu. And most importantly, the new number is forint-negative, as it suggests that the MNB is in no need to tighten policy in fear that the most recent forint weakness might reignite inflationary pressures in the domestic economy.But at second glance, there is a bit of a twist in the story. Core inflation actually rose to 3.9% yoy from August's 3.7% yoy, and adjusted core inflation, the one that excludes the impact of indirect tax changes and was named by the MNB as their main policy indicator a few months ago, also rose to 3.4% yoy from 3.2% in the previous month. According to official explanation, the marked difference between the movements by headline and core inflation was caused by unprocessed food and fuels.CPI-inflation and core inflationNote: Yoy changes in %; Sources: KSH, MNBAs for the former, the prices of potatoes, fresh vegetable and fruits fell in September, causing the average prices of all food items to remain unchanged, so that without this effect, food price inflation would have reached 0.6% mom. This implies a 0.15% negative impact on the whole CPI in September.As for the latter, the fuel price story is kind of interesting. The average consumer price of fuels fell by 0.9% mom in September, despite the fact that wholesale prices rose by 1.5% mom in the same month. (As a result, non-fuel inflation remained unchanged from August, at 3.7% yoy.) There is no immediate explanation on why this big ...