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Interfax: Hungarian inflation data no reason for rate hike - analysts

13.3.2007 18:20

BUDAPEST. MARCH 13. INTERFAX CENTRAL EUROPE - Hungary's February inflation rate of 8.8% year on year did not differ significantly from market expectations, and therefore the Central Bank (MNB) is expected to keep interest rates unchanged, analysts said Tuesday.

"We do not think that the MNB will change its interest rate policy on this data materially, as the deviation form earlier expectations is not large enough for this," Goldman Sachs analyst Istvan Zsoldos said in a note. "[However] it increases the risk that they may hold rates longer before cutting."

February inflation, marginally higher than the market consensus of 8.7% y/y, was led by increases in regulated prices, especially energy but also in pharmaceuticals. Food prices also increased at a rate above the average, while service price inflation has picked up since January, although it remained below the average.

Zsoldos said that while food price inflation is slightly decelerating, it is still in the double digits and could exert a harmful influence on inflation expectations, which in turn is a main worry of monetary policy makers.

"The processed food price inflation is probably just a delayed response to the earlier increase in raw food prices, but even then it is not good news for inflation expectations, as this is a part of CPI where consumers are frequently exposed to prices."

On the positive side, some observers note that core inflation - which excludes volatile energy and unprocessed food prices - is significantly below the headline figure at just 5.8% y/y, and accelerated by just 0.2 percentage points since January following faster growth in previous months.

"This is positive news, as it shows that the second-round effects of elevated oil prices have not been very strong," Danske Bank analyst Lars Christensen said in a comment. "We expect that CPI growth is now very close to peaking, and there is no doubt that the strong performance of the Hungarian forint has helped reduce inflationary pressures - hence we think that the Hungarian central bank has ended its tightening cycle."

Others pointed out that almost all of the acceleration in inflation came from regulated prices, such as changes in price subsidies for household natural gas and medicine, and the introduction of a "visit fee" to be paid for hospital stays or doctors' visits.

"Overall, we believe the underlying market-driven inflation developments are still favorable due to the strength of the forint, and we do not see any indication of deteriorating inflation expectations from changes in service prices," DZ Bank said in a comment.

Most analysts expect monthly y/y inflation to peak around 9% sometime in the first half of the year, possibly as early as March, while annual average inflation in 2007 is seen at around 7% y/y.


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