HU: Concerning core inflation dynamics

Todays inflation figures came as a huge negative surprise again. Consumer prices climbed 0.8% m/m in February. This took the 12-month headline rate to 5.6%, up from 5.5% in January. The actual figures were higher than our estimate of 5.2% y/y and the Bloomberg consensus of 5.3% y/y. Thus, the year-start repricing was much stronger than previous expectations. Although the essence is core inflation which reached 6.2% y/y, following 5.8% in January.

As for the details, price increases were rather broad-based again. Food prices increased by 1.2% m/m, mainly driven by significant monthly increases in the prices of edible oil, coffee, seasonal food items and some dairy products. Higher excise taxes strongly affected the alcoholic beverages and tobacco category. Due to winter sales, prices of clothes mitigated the monthly price pressure (-0.9%). On the other hand, prices of durable goods increased by 0.3% m/m. Prices of services increased significantly too, by 1.2% m/m, within which personal care services cost 1.6%, the repair and maintenance of vehicles 1.5% and the repair and maintenance of dwellings 1.4% more for consumers. These groups contain in rough majority sole entrepreneurs who usually decide on repricing based on food and fuel prices rather than minimum wage increases or general labour market processes. Beside clothes, fuel prices decreased on monthly basis by 0.9%.

All in all, domestic inflation processes have been affected by several accelerating factors once again. Recent stronger levels of the currency and partially therefore decreasing fuel prices could ease the headline figure in March, however as dynamics of core inflation suggest the basic processes are in really an unfavourable shape. The magnitude of the February repricing was still well above expectations and usual seasonal patterns that inflationary expectations of economic players are still not anchored. This may cause headaches for the central bank, which is expected to maintain its hawkish communication. Due to todays figures our recent FY forecast of 5.0% for 2025 seems to be too low, so we are set for an upward revision.