Josef hírek

2010.06.13. 11:26

11/06 Hungary CPI to decelerate further, then may re-accelerate on floods, weak HUF, says City

<p>London, June 11, 2010 (MTI-ECONEWS) - Hungary s consumer inflation is set to decelerate further, but potential food price rises caused by recent floods and recent HUF weakness may give it a boost later this year, London-based emerging markets analysts said after CPI figures from May, largely in line with the consensus, were released on Friday.</p>

Year-on-year headline inflation was 5.1pc last month after a 5.7pc reading in April.

    Polled by ECONEWS in London, analysts ranged narrowly from 4.9pc to 5.1pc in their forecasts before the data release.

    JP Morgan said after the figures for May were released that energy prices will continue to put upward pressure on inflation in coming months as the price subsidies are phased out, while the floods are likely to drive food prices higher.

    The recent weakening of the forint will also have "some impact".

    Even though the base effect from last July s VAT hike will put downward pressure on inflation, "we now see inflation reaching a trough of 3.5pc in July-August, about 0.5 percentage point higher than our previous forecast ... we expect (year-on-year) inflation to rise to around 4pc by year-end".

    The room for further monetary easing has narrowed significantly, owing both to the deterioration in market conditions - worsening risk appetite and a weaker forint - and increasing upside risks to the inflation target from cost-push factors. "We have recently revised our rate call and see the NBH on hold for an extended period, with the next move being a rate hike in the second half of 2011 ... a strong forint rally could trigger another rate cut in 3Q (this year), but this is not our base case", JP Morgan said.

    Christine Li, London-based economist at Moody s Economy.com also said that given a weaker forint, the National Bank of Hungary will be "hesitant" to cut interest rates "too soon", even though Hungary s policy rate remains higher than those of its CEE counterparts.

    Once financial markets stabilize, however, Moody s Economy.com expects Hungary s central bank to cut interest rates one more time by 25 basis points towards the end of 2010, taking the base rate to 5pc, Ms Li added.

    Ms Li stressed that household spending remains very weak on the back of fiscal austerity and still-tight credit conditions. Moreover, firms are unlikely to be able to pass on the rise in costs to end-customers. This will put pressure on profit margins and could keep unemployment high and ensure inflationary pressures do not rise "too fast".

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