HU: Inflation increased to 4.6% y/y in June

The CSO released the June inflation figures this morning. Consumer prices increased by 0.1% m/m, taking the annual inflation rate to 4.6%, up from 4.4% seen in May. The actual figure was slightly better than our estimate of 4.7% but was in line with the consensus. Continued slowdown in core inflation is favorable, as it declined to 4.4% in June from 4.8% in May.

On a monthly basis, food prices rose by 0.1%, which was slightly better than our expectations, mainly contributing to the slight positive inflation surprise. However, the picture is nuanced by the fact that service inflation remains high: in this main category, consumer prices increased by 0.6% m/m, with significant contributions from holiday services (3.7%), sports and museum tickets (2.3%), and local public transport (1.1%). Development of vehicle fuel prices was practically in line with expectations, with a monthly increase of 0.5%. Despite the stability of the forint exchange rate, the 0.4% monthly increase in durable goods prices was surprising, however.

Overall, the inflation picture is rather mixed. In the coming months, the stability of the forint, easing of labor market tightness, and the expected slowdown in wage outflows support disinflation. This latter should primarily appear in the moderating inflation of market services. However, this year's unfavorable weather continuously poses an upward risk to food price developments, despite governments admistrative price controlling measures. Uncertainties regarding the timing of the withdrawal of these measures seems to remain with us for some time, complicating forecasts. Additionally, an unfavorable base effect will influence inflation processes in the second half of the year, so the yearly index is set to fluctuate between 4-5% without an explicit trend until the year-end. After the release of the June inflation figures, we maintain our 4.7% forecast for the FY annual average inflation rate in 2025.