April consumer price index for Hungary accelerated surprisingly to 0.2% y/y from March’s -0.2% y/y. Meanwhile, core inflation accelerated to 1.4% y/y from 1.3% y/y. Unprocessed fruits, fuel and long-range travel mainly helped the headline CPI to accelerate rapidly in April. Also, tradable goods and market services prices also rose; however, it continues to be weak compared to the relatively solid household consumption.
Hungary’s inflation is expected to reach about 2% y/y by the end of 2016, noted KBC Market Research in research note. This year the average inflation is likely to be around 0.5% y/y, as compared with the earlier projection of 0.3% y/y. This is due to the earlier pick-up of oil price and the recently announced rise in excise duty.
“We expect that inflation might remain around 2% Y/Y in 2017 as well, because of the planned VAT cut from January. We see some upside risk coming from the possible bad harvest in case of fruits because of the freeze in April”, said KBC Market Research.
Meanwhile, the HUF continues to be weak in spite of above expected inflation. The NBH is likely to lower its base rate to 0.9% in May and might emphasize the end of rate cut cycle in the near future. This suggests that the central bank might lower rate one more time in June.
