Hungary’s inflation set to accelerate despite soft March data

(MTI) – Hungary’s consumer inflation is set to jump higher later this year on the back of base effects stemming from the previous utility price cuts, London-based emerging markets economists said on Friday.

Consumer prices rose just 0.1 percent last month from March 2013. London-based analysts had expected a slight acceleration in March, with forecasts varying in a narrow 0.2-0.4 percent range.

Economists at Goldman Sachs said after the data release that they still expect inflation to increase moderately in the second quarter, albeit from a lower level, as base effects reduce the disinflationary impact of the utility price cuts.

“We expect inflation to stay below 1 percent for most of the year but expect a sharper acceleration at end-2014 to early 2015, as base effects related to the second round of utility price cuts push headline higher … Barring additional regulatory price cuts, inflation should reach the [3 percent medium-term] target in 2015”.

Analysts at JP Morgan said that inflation is likely to drift higher in the coming months and will jump above an annual 2 percent in December.

Because energy price cuts this year are smaller than those enacted last year, base effects will push inflation higher over the second half of the year. “We expect headline and core inflation to converge at the 3 percent CPI target in the 2nd quarter of 2015 and stabilize around that level for the rest of the year”.

They added they continue to see one more 10 basis point rate cut to 2.5 percent this month by the central bank, followed by stable rates until the second quarter of 2015.

“While not our base case, the [Monetary Council] could cut rates below 2.5 percent if the ECB eases, the forint appreciates strongly or the growth outlook deteriorates … We expect rate hikes to start only in the second quarter of next year, in contrast to consensus expectation for rate hikes to 3 percent by end-2014”, JP Morgan’s analysts said.

Source: http://mtva.hu/hu/hungary-matters