HU: Inflation increased to 4.1% y/y in July

In July, consumer prices rose by 0.7% m/m, bringing the annual headline inflation rate to 4.1%, up from June's 3.7%. The actual figure was slightly above the analysts' forecast of 3.9-4%, yet it was essentially in line with our projection. The core inflation rate increased more rapidly, from 4.1% to 4.7% year-on-year, justifying cautious stance of the monetary policy.

Food prices rose 0.6% on monthly level, within which prices of some basic food relevantly increased compared to June - flour: 38.1%, sugar: 13.9%, edible oil: 9%, milk: 6.8%, egg: 4.3%, poultry meat: 3%, pork 2.5%. These prices changes were practically due to the July phasing out of mandatory discounts in stores. The 3.8% m/m increase in fuel prices was a crucial driver of the monthly inflation. Formation of households energy prices came as a minor positive surprise, as prices dropped by 0.8% m/m in this category. On the other hand, prices of durables rose by 0.3% m/m, while prices of services increased by 1.1% m/m, as prices of recreational services grew by 12.3% and postal services by 5%. Price pressures have not really eased in the services category so far, driven mainly by strong wage outflow. This coupled with the faster than expected acceleration of the core inflation indicate that underlying inflation processes are not totally under control yet, justifying cautiousness of the monetary policy regarding further easing steps. We do not expect a rate reduction at the approaching August rate setting meeting.

Regarding the inflation outlook, the impact of an unsupportive base effect will be significant in the last quarter, leading the 12-month rate to potentially accelerate to nearly 5% by year-end. The annual average inflation rate for 2024 is projected to be just under 4%. The extent of potential monthly repricing remains uncertain in the coming months and will largely depend on the pace at which consumer demand recovers in the second half of the year.