Consumer prices rose an annual 3.1% from a year earlier
Photographer: Attila Kisbenedek/AFP/Getty Images
Hungarys inflation rate quickened in February, marking the start of several months of volatility that may test the central banks resolve.
Consumer prices rose an annual 3.1% from a year earlier, quickening from 2.7% and compared with the 3.0% median estimate of 15 economists in a Bloomberg survey. Monthly inflation was 0.7% while core inflation stayed at 4.1%
- The uptick in the inflation rate is mostly related to base effects in fuel prices and an excise tax increase on tobacco products, developments that the
central bank has warned will take price growth temporarily above its tolerance level of 4%
- With a global shift in inflation expectations pushing the forint near a record low against the euro, investors are assessing whether the central bank will step in to temper price expectations with a hike in the 1-week deposit rate
- While money markets are pricing in 15 basis points of tightening for the next 3 months, a decision to
expand coronavirus restrictions this week, including closing most shops and halting services, may prompt rate setters to steer clear of rate hikes for now
What the Economists Say
- Headline inflation dynamics are on course to be relatively strong, owing to the sharp increase in oil prices, strong base effects from last years energy price fall and a number of administrative price changes, according to Goldman Sachs analysts Tadas Gedminas and Kevin Daly
- The peak inflationary effect from these factors is likely to emerge in April and May, potentially coinciding with a sharp recovery in economic activity as lockdown measures ease
- Central banks in the CEE region will look through this temporary increase in inflation and will refrain from tightening while economies remain on track to recovery
- Headline inflation could exceed 4% y/y in April-May 2021, pushed up by fuel prices, Erste Group Bank AG analysts Malgorzata Krzywicka and Katarina Muchova write in an emailed report to clients
- Hungarys central bank will remain cautious and could react by raising the one-week deposit rate to prevent the forint from depreciating and creating additional inflationary pressure
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