Smaller than expected price rise in Hungary

Hungary’s consumer prices rose 0.9% year on year in January 2016, the Central Statistical Office (KSH) has reported on Thursday. The consensus forecast of analysts in a poll by the financial website portfolio.hu showed that inflation accelerated to 1.1% from 0.9% in December, i.e. the actual CPI reading undershot expectations.

Accordzing to portfolio.hu, the market was expecting a higher headline inflation figure despite the fact that two dampening factors were clearly visible. Firstly, fuel prices (in relation to decreasing oil prices) dropped 4.2% month on month and secondly, the VAT cut on pork sent pork prices 15.3% lower.

We should also highlight, though, that fuel prices fell even more drastically in the base period therefore this could not dampen the headline figure.

As for the key product groups, food prices (especially because of the aforementioned reduction of VAT on pork), and the prices of alcoholic beverages and tobacco were a drag on inflation. The price index of services has also moderated somewhat, whereas clothing, consumer durables and fuel prices accelerated inflation.

One of the surprises here was probably that the VAT cut on pork passed through to consumer prices entirely. However, it also suggests low inflationary pressure that seasonally adjusted core inflation was merely 0.1% m/m, which is not exactly a telltale sign of rising inflationary pressure, to say the least.