Surprise, surprise: bad news on CPI-inflation

HUNGARY - In Brief 08 Nov 2018 by Istvan Racz

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CPI-inflation for October came out at 0.5% mom, 3.8% yoy this morning, up from 3.6% yoy in the previous month, beating Portfolio.hu's 3.7% yoy analyst consensus (and even more our 3.6% yoy forecast, to tell the truth). KSH's core inflation rose to 2.6% yoy, from September's 2.4% yoy, and non-fuel inflation was 0.5% mom, 2.8% yoy (up from 2.7% yoy in September). Finally, the MNB's three adjusted core inflation measures also rose, to 2.5-3% yoy, from September's 2.4-2.7% yoy.The most worrying part of this army of numbers was the 0.5% mom increase in non-fuel prices, which seems very high on the grounds of usual seasonality, given the 0.3% mom increases by the same category of prices in each of the previous two years' Octobers. Food prices within this total rose by the same amount, so it is becoming increasingly difficult to find an excuse, in the form of a non-core item that would conveniently stick out somewhere.CPI-inflation and core inflation (yoy in %)Sources: KSH, MNBMost importantly from the policy perspective, the inflation picture appears to be making the MNB's credibility problem increasingly serious. The headline rate is now at a six-year peak, it has almost reached the upper end of the 2-4% tolerance range, and the various core inflation measures have risen dangerously close to the 3% medium-term target. In its September inflation report, the MNB expected the yoy headline rate to peak at 3.4% in that month, expecting a descent to 3.3% yoy for October. So the divergence of actual inflation from the MNB forecast is growing, the actual inflation path seems to follow a different trend, and based on the state of the labor market and the facts about producer prices ...