January CPI came out above our optimistic estimate as well as above the market consensus. The monthly increase was 1.3%, which bought the annual figure to 6.6% from 6.8% in December. The fastest rising item within the basket were the food prices, up by 2.6% m/m, which is quite strong even when taking into account the seasonal patterns. Although it is less than last year, in January 2001 the rise was extremely high. We also expected much deeper seasonal fall of clothing prices (-1.6% m/m) Deregulations were in line with our forecasts in January. Housing costs increased by 0.9% m/m, mostly due to hike in prices of water, savage and rents. Prices of electricity and other energies, on the other hand, were barely changed; they will experience their usual hike in coming months. Trans-portation prices rose due to more expensive maintenance and repairs as well as due to hike in transportation services and passenger transport prices. Fuel prices, on the other hand, de-clined by 0.8% m/m, however, we must expect an increase in February. There is apparent overall increase in prices of many services, as service providers increased their prices at the start of the year.
The core inflation rose only by 0.3%, falling from 8.1% y/y in December to 7.2% in January. This shows that the underlying trend of declining inflation is slowed down by food prices and regulated prices. However, the central bank now must concen-trate mostly on the overall inflation, as it is very important to attain the target for the end of 2002 (4.5% +/- 1%). In Febru-ary, we may expect another fall in the y/y CPI, however, it seems that it will again not fall below 6%, as the food prices in January showed quite strong momentum and we must count with further impact of deregulations as well as with the rising fuel prices.
Regarding this Monday’s session of the Monetary Council, we must also take into account the forint, which surged to EUR/HUF 240 after yesterday’s clearly pre-election comments by prime minister Orban that the Hungarian currency should firm by 3-5% each year before joining the EMU. This together with the rather disappointing January inflation in our opinion indicates a cut by „only“ 25 bps.
Jakub Dvorak