HU: August inflation came in at 3.4% y/y

Compared to July, consumer prices remained unchanged in August, bringing the 12-month headline rate to 3.4%, after 4.1% seen in July. The actual figure came as a pleasant surprise, as the slowdown of inflation - that was partly supported by the base effect was larger than expected. Its favorable that inflation is in the central banks tolerance range again. Core inflation slightly declined, from 4.7% to 4.6% y/y.

The positive surprise came from food prices that stagnated in August, following a relevant monthly increase in July. Thanks to seasonal effects, prices of clothes dropped by 1.3% m/m. Contrary to July, fuel prices declined by 0.8% m/m in August. Meanwhile, it can be seen as positive that inflation of services was moderate, as prices increased just by 0.4% m/m in this category. The yearly inflation of services remained high, still standing at 9.5% in August.

After the publication of the August CPI figures, the inflation outlook has not really changed, in our view. In the coming 1-2 months, the 12-month rate will likely remain in the MNBs tolerance range. However, due to the unsupportive base effect, it would accelerate above 4% by the year-end. The annual average inflation rate for 2024 is set to be under 4%, however.

Expectations of further rate cuts grew stronger after the publication of the data this morning, resulting in further weakening of the forint exchange rate. However, paradoxically, it is the vulnerability of the domestic currency and increased volatility on the market that may deter the MNB from abandoning its cautious stance.