HU: Negative surprise for the year-end

Consumer prices increased by 0.5% m/m in December, taking the 12-month headline rate to 4.6%. The actual figures exceeded the expectations. Regarding FY dynamics average inflation came at 3.7% in 2024. It is unfavorable that the 12-month core inflation also increased: to 4.7% y/y from 4.4% y/y, published for November.

As expected, foods and fuels were the main inflation drivers, rising by 0.5% m/m and 2.2% m/m, respectively. Prices of clothes rose only by 0.1% m/m, while prices of durables decreased by 0.6% m/m, reflecting the weaker forint. Energy (electricity, gas) prices increased significantly by 1.7% m/m in December, due to the higher consumption stemming from colder weather. Inflation of services surged just by 0.4% m/m, higher than the usual seasonal pattern, within which rents became 2.0% higher. Moreover transportation, flight tickets and cinema also became relevantly more expensive on monthly basis. The price increases of durables and certain services show the negative effects of the weakening currency came earlier (by one month) as we expected.

As for short-term prospects, inflation is set to remain out of the tolerance band in the next months, however the massive backward-looking repricing in early 2024 will slip out of the base. This year, the lately experienced weakness of the forint is still expected to leave its mark in consumer prices, while inflation-linked tax changes should also be pro-inflationary. The upward correction of telecommunication prices will also come soon. The reviving consumption could also create room for repricing. FY 2025 inflation is expected to exceed 4% on average. As a result, the central bank does not have to think about cuts in the short-term.