August inflation came out slightly better than our estimate of –0.1% m/m. Food prices (according to the COICOP classification) fell 1.2%, more than we anticipated. The seasonal decline of clothing was made stronger by cheaper imports. The lower USD and cheaper oil imports enabled the decline in fuel prices, which was reflected in 0.4% decline in the transportation prices.
However, the most positive news is that the majority of the components posted a decline in their y/y pace.
The impact of stronger forint is apparent on consumer durable goods which declined 0.3%, mostly thanks to cheaper automobiles and electronic devices. Service prices posted only a 0.3% m/m increase.
The core inflation rose 0.6%, however, thanks to high last years base, the annual figure declined to 9.6%.
The central bank undoubtedly made the yesterday’s 25 bps rate cut with the presumption that today’s figures would be positive. Almost everybody is convinced that this is the start of declining trend in inflation. Given the high comparable basis of last years, the weaker exchange rate of the dollar against the euro, the more favorable development of food and oil prices and the maintained higher exchange rate of forint, we can certainly expect further decline in the y/y inflation in coming months. This should ensure that the December inflation at 7-8% forecast by the central bank would be met. Therefore we cannot exclude further cuts by 25-50 bps, which will become more likely if the industry and exports remain subdued. Nevertheless, we remain pessimists concerning the long-term inflationary developments (especially in 2002). The effect of stronger forint may wane off after couple of months. That is why we do not see enough space for deeper rate cuts.
(Jakub Dvorak - CSOB)