Headlines:
- (1 0487 CZK, -1,53%) Orban unveils details of the National Protection Plan
- Hungary’s inflation surprised on the upside; Poland’s inflation should rise to 4.3% y/y
On Monday, CE currencies posted modest losses. The Polish zloty underperformed its regional peers and depreciated by about 1%. Interestingly, the Hungarian forint cut a part of losses after Orban unveiled some details of the “National Protection Plan”. Hungarian Bank Association said later in the afternoon that the plan holds serious financial, macroeconomic risks and also endangers Hungarian growth. According to the press release, the association will raise an objection at Constitutional Court and EU.
As far as freshly released Hungary’s inflation reading is concerned, it surprised both us and markets on the upside (3.6% y/y vs. consensus 3.4% y/y). The main driver of a year-on-year growth in headline inflation remains prices of food, which grew by 6.3% compared to August 2010.
Like in Hungary this morning Poland should release the August inflation readings this afternoon too. After July’s surprisingly lower reading, the August price rise should mark the second peak of the year, at 4.3% y/y. As we anticipate a moderate seasonal decline in food and soft drink prices (their weight in the consumer basket is 24%) and a month-on-month stagnation of the transport sub-index, the primary factor in the year-on-year inflation rise compared to July should be a negative impact of base effect (prices were down by 0.4% m/m in August last year). Although the August year-on-year inflation is also likely to be well above the target of the NBP, it should slowly fall in the months to come, and, for the end of the year, we predict the year-on-year price rise to be in the vicinity of the upper threshold of the central bank’s tolerance band, which is 3.5%.