Higher than expected industrial producer price inflation surprised markets when it rose annually by 7.9% and went up by 2.4% in monthly terms in June. In May, producer prices rose 0.1% compared to previous month and 5.3% y/y. Bigger increase was recorded at export prices, which rose by 8.0% y/y and 3.5% m/m in June compared to 4.2%y/y rise and 0.2% m/m decline in May. The rise of domestic sales prices was not as strong however exceeded figures from May in monthly as well as yearly terms, when it rose by 7.7%y/y (6.9%y/y in May) and 0.8%m/m (0.5%m/m in May).
Although the key driver of the sharp increase in PPI figure was export price growth, which reflects sharp weakening of the forint automatically (the forint lost 7.6% during June) and is unlikely to pass through to consumer prices, the rise in domestic sales indicates that the inflation outlook for CPI has slightly deteriorated as well. On top of that, higher than expected PPI figures may provoke markets to pay more attention on the risk that weaker forint might boost inflation. Nevertheless we do not believe this figure alone can change inflation outlook of NBH and consequently its decision concerning raising base rate. Crucial will be consumer price inflation, which might prove or deny that weak forint has affected prices significantly (June prices so far did not show much evidence of exchange rate pass through yet).