Hungary Deflation Exit Shows No Sign of Swaying Central Bank

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Hungarian consumer prices rose for the first time in nine months in May, exceeding forecasts yet without changing the assessment driving the central bank’s continuing rate-cutting cycle.

Inflation was 0.5 percent in May from a year earlier, the highest reading since 2013, the statistics office in Budapest said in a statement Tuesday. That compared with a 0.3 percent drop in April and a median estimate for a 0.1 percent increase in a Bloomberg survey of 12 economists. Consumer prices rose 0.7 percent in the month.

The price trends “continue to point to a moderate inflationary environment,” the National Bank of Hungary said in a statement on its website. Policy makers signaled last month that the inflation outlook allowed for further “cautious” easing after they lowered the benchmark rate in a third consecutive 15 basis-point step to 1.65 percent.

“The faster-than-expected inflation data is unlikely to influence the Monetary Council’s decision,” Vivien Barczel and Gergely Urmossy, Budapest-based economists at Erste Group AG’s Hungarian unit, said by e-mail. They predict a cut to 1.5 percent in June and see a “realistic chance” of more easing in July.

The forint strengthened 0.4 percent to 312.49 against the euro by 11:19 a.m. in Budapest.

Inflation Report

The central bank, which targets 3 percent inflation in the medium term, will publish its new price growth forecasts when its next rate meeting convenes on June 23.

The consumer-price index rose as motor fuel costs jumped 3.9 percent from April and food costs increased 1.1 percent. On an annual basis, food prices rose 1.2 percent and services increased 2.3 percent. Motor-fuel prices fell 8 percent and household-energy costs declined 2.6 percent.

“The acceleration in non-core prices is likely to be reflected in an upward shift in the” central bank’s “inflation forecast update in June but the overall dovish assessment is unlikely to be changed,” Eszter Gargyan, a Budapest-based economist at Citigroup Inc., said in an e-mail.

The core inflation rate, which strips out volatile food and energy items, rose 1.3 percent in May from a year ago. Excluding indirect taxes, the gauge was at 1.2 percent, unchanged from April’s annual data, the central bank said.

Sticky-price inflation accelerated to 2.3 percent, the fastest since 2012, from 2.2 percent in April, while the demand-sensitive inflation rate was 2 percent, compared with 1.9 percent in April, the bank said.

“The central bank will surely cut further in June and afterward its new inflation forecast will determine the room for more cuts,” Gergely Suppan, a Budapest-based economist at Takarekbank Zrt., said by e-mail. He forecasts no further reductions after policy makers may take the main rate to 1.5 percent this month.

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