Czech and Hungarian inflation decelerate in April, CNB likely to further cut inflation forecast

The inflation data for Hungary and the Czech Republic was released on Wednesday, which have surprised to the downside. This is partially due to the decline in energy prices and subdued food prices. However, the core inflation does not seem to be accelerating by much. According to a Commerzbank research report, if inflation remained low in the CEE nations in the coming year, it might put pressure on CEE currencies, particularly on PLN and HUF.

Czech consumer price inflation came in at 2 percent year-on-year in April, as compared with consensus expectation of 2.3 percent, whereas Hungarian inflation came in at 2.2 percent as compared with consensus forecast of 2.3 percent. The Polish data will be released on Friday, but the market does not expect any considerable rise in the data.

The Czech National Bank had originally projected inflation to come above its 2 percent target, considerably in the second quarter and then gradually come back to the target rate later in the year. However, recently the central bank cut its second quarter inflation forecast from 2.3 percent to 2.1 percent as energy prices dropped.

But, inflation has already dropped back to its 2 percent target by April, signifying that the Czech national bank would probably have to further cut its forecasts. Meanwhile, the Hungarian central bank had calculated that the underlying inflation measures were weak in April. The tax-adjusted core inflation measure eased to 1.8 percent from 1.9 percent.

Base effects are accelerating year-on-year inflation rates in certain nations; however, significant underlying inflation acceleration seems unlikely, noted Commerzbank. The Czech Republic is the likely exception and thus has to be monitored closely.

“As base-case, we do not forecast monetary tightening by CE3 central banks even by the end of 2018. There would be risk to our view if global commodity prices were to continuously rally from here”, added Commerzbank.