Analysts on today’s inflation data: Hungarian inflation will continue to fall, but the risks are still significant

By RockedBuzz 7 Min Read

In the morning, we wrote that annual inflation moderated to 20.1% in June, which was in line with analysts’ expectations. The monthly inflation increased to 0.3% after the previous month’s decrease, but this cannot be called a significant increase, moreover, the monthly inflation is contaminated by significant seasonality.

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The inflation indicator, which is falling as expected, supports the central bank in further reducing the overnight deposit rate. However, due to the still high level of inflation, the MNB may remain with the cautious and gradual interest rate normalization cycle, he wrote in his quick comment Peter Kiss, the Amundi Fund Manager investment director.

According to Péter Kiss, the still ailing household consumption can have a meaningful influence on inflation in the medium term, which the introduction of mandatory promotions can only be offset to a small extent.

We expect a greater slowdown in the consumer price index in July and September due to base effects, so the introduction of food price caps in August is not expected to break the favorable trend

– writes.

According to him, the year-end inflation falling below the 10 percent threshold is the most likely scenario even after today’s data.

According to him, however, this news is not expected to move the bond market too much, however, since the central bank must continue to be careful with the relaxation, the stability of the foreign exchange market seen in recent months may be maintained.

Gregory Suppanthat is MBH Bank its leading analyst draws attention to the fact that in the case of food prices, the seasonally observable drop in summer food prices also contributed to the effects of the ever-widening price reductions, which may continue in the coming months due to the drop in raw material prices and production costs.

In the second half of the year, we expect a sharp decrease in inflation due to base effects and the increasingly widespread price reductions announced for food products

– wrote Suppan, who says that the base effects can be strengthened by the fact that international raw material, crop and energy prices and transport costs have fallen significantly, mostly to 2021 levels, in recent months, so we do not expect new external price shocks.

According to Suppan, the strengthening of the forint can also accelerate the reduction of inflation, which can already be clearly observed in the case of consumer durables. “Also, it is a downside risk that in the coming months, even for households paying a flat rate, the reducing effect of lower consumption on energy bills may appear, which could lead to a further decrease in household energy prices in the consumer price index,” he writes.

At the same time, he draws attention to the fact that the formation of a price-wage spiral can be observed in some service sectors, which may slow down the rate of inflation reduction, however

inflation can already be in single digits from October, it can moderate to close to 6% by the end of the year.

MBH expects this year’s average annual inflation to be 17.5%, while next year’s inflation may decrease to 3.9%, despite the increase in excise duty on fuels at the beginning of next year. According to them, the base interest rate may drop to 10.5% by the end of the year, after it is expected that the one-day quick tender rate will close with the base interest rate in September.

The structure of inflation was more or less as expected

– written by Great Johnthat is Erste Bank grip analyzer. “In relation to the development of the cost side, the monthly repricing in this segment has finally entered the negative range, so it can significantly support the normalization process,” he said. He draws attention to the fact that the 0.9 percent month-on-month increase in the price of service inflation, which was significantly above the average, still deserves special attention.

Erste expects inflation to fall somewhat faster from the summer.

“For the time being, disinflation can also be helped by the currently rather weak domestic economy. In the second half of the year, due to the increasingly stronger base effect, the annual growth rate of prices may slow down more rapidly,” writes János Nagy.

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In addition, it warns of the still considerable mid-term inflationary challenges in addition to the significantly changed global environment and the tight labor market. “In recent months, domestic disinflation was mostly driven by energy and fuel prices, but over time the upturn in the global and domestic economy may bring about a turnaround in this area,” he warns. “At the end of the year, the change in real wages that will become positive again and with it the invigorating internal demand may once again give room for repricing. “Many companies are introducing price correction with retrospective inflation, which can significantly dampen the slowdown in price dynamics at the beginning of next year,” he points out.

According to Erste, the reduction may continue in 2024 as a whole, but according to their current expectations, inflation will return to the central bank’s target range only in 2025. All of this suggests a persistently strict monetary policy and a forward-looking real interest rate remaining in the positive range in the coming period.

The question is no longer the single-digit inflation at the end of the year, but the achievement of the medium-term goal of 3 percent.

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