Hungary's consumer prices rose by 8.8% year on year in February, picking up from 7.8% in January. In monthly terms inflation rose by 1.2 %, unchanged from January’s growth. Also core inflation rose only marginally from 5.6 % y/y in January to 5.8 % y/y in February.
Our view: February’s inflation came broadly in line with market consensus and thus did not provoke any significant market reaction. In addition the surge in inflation was caused primarily by administrative price hike and reflected also low base from the same month of the previous year. The main contributors to rise in inflation were gas prices, which surged in monthly terms by 22.5 %. Other price rise, which influenced the inflation, was medical services which surged by 23,6 % m/m due to introduction of doctor visit fees and also transport services, which rose by 1.6 % m/m mainly due to passenger transport by railway. It is worth stressing that that other components, which were unaffected by administrative price hikes, such as prices of clothes and consumer durables decreased in February (by 2.4% and 0.6 % m/m respectively).Since majority of price rise was due to administrative price changes we do not change our outlook on monetary policy.
We believe that MPC will continue to stay on the sidelines during the first half of this year. In addition the strong forint supports our view that monetary tightening cycle is over. Simultaneously favourable development of prices unaffected by administrative price hike affirms our view that rate cuts could take place in the second half of this year.