bne IntelliNews – Hungary’s central bank appears poised to start monetary tightening after CPI stubbornly remains above 5%
Consumer prices rose 5.1% yoy in April at the same rate as the previous month, driven by higher tobacco and fuel prices, the statistics office said on June 9.
After the reading, the governor of Hungary’s central bank issued a hawkish statement, saying the monetary policy reversal could begin in June if the Monetary advice on rate setting hear it. The prolonged rise in inflation could jeopardize the economic recovery and the economy could resist a rate hike, Matolcsy added.
Headline inflation, at its highest level since 2018, slightly missed expectations on the downside as many analysts expected the reopening of the service sector to push inflation up. On a month-to-month basis, the CPI was 0.5%.
Many analysts were expecting a significant revaluation in services, but on the other hand, the numbers surprised on the downside, increasing only 0.2% m / m and 2.1% y / y. ING Bank expects pricing pressure in the service sector to show up in the June data.
Spirits and tobacco prices rose 12.2%, driven by a 19.8% increase in tobacco prices. Prices in the commodity category that includes motor fuel rose 13.4%, while prices for motor fuel jumped 36.2%. Food prices rose 2.6%, energy prices for households edged up 0.4%, and prices for durable consumer goods rose 3.5%.
Core inflation, which excludes food and fuel price volatility, was 3.4%. The CPI calculated with a basket of goods and services used by retirees was 4.4%.
Currently, inflationary developments are mainly driven by a sharp rise in fuel prices, the MNB said in a separate report, adding that the price revision was higher in April and May than in the same months of the year. previous.
A month ago, Vice Governor Virag Barnabas highlighted the possibility of monetary tightening at the June 22 rate-setting meeting pending the findings of the quarterly inflation report on the same day.
The Hungarian forint, one of the weakest currencies in 2020, losing 10.5% against the euro, started a rally after comments rose from over 360 to 344. The EUR / rate HUF fell from 348.5 to 346.5 after Wednesday’s inflation data and comments from MNB officials.
At a financial conference yesterday, Virag confirmed that the MNB is preparing for a tightening cycle, which will begin with adjusting short-term interest rates. “We want to eliminate persistent inflationary trends as quickly as possible,” he added.
There is a real risk that central banks around the world will react late to inflation, Virag said, adding that the rise in core inflation shows lingering inflationary effects. The inflation deceleration could be prolonged and the annual inflation rate could be 4% or more.
The central bank has raised its forecasts for average annual inflation at 3.8-3.9% in a quarterly report published on March 23, against 3.5-3.6% in its previous report three months earlier.
Analysts expect the base rate and the one-week deposit rate to rise to 0.90% in June, after which the MNB may take a wait-and-see stance. Policymakers have kept the base rate at 0.6% since last summer, but raised the one-week deposit to 0.75% in September.