Hungary: Core inflation on the rise

Hungary's headline inflation came in at 2.7% YoY in December, a 0.4ppt drop compared to the November reading. We do not see this drop as a surprise as lower oil and fuel prices will have had a significant effect on the headline reading. According to the Hungarian Central Statistical Office, fuel prices lowered by 6.9% in a month, showing only a 1% rise on a yearly basis. The December year-on-year reading shows a significant deceleration from the 7.2% YoY rise in November. This implies that the drop in fuel prices dragged down the headline reading by 0.47ppt. This figure points to another important fact; underlying inflation is increasing steadily as despite the almost 0.5ppt effect from fuel prices, the headline figure came down ‘only’ 0.4ppt.

In the details, we see inflation in food and tobacco accelerating at an above-average level, but more importantly, inflation in services also strengthening. Regarding the latter, the 2.3% YoY price increase in December posts a rise not seen since early 2015. Against this backdrop, the further acceleration in core inflation hardly comes as a surprise. The 2.8% YoY reading is the highest since September 2017 and the second highest since early 2014. The NBH-calculated core CPI excluding indirect taxes is also up by 0.2ppt to 2.9% YoY, the highest figure in seven years. This is the most crucial indicator, as the central bank sees this reading as a lynchpin for upcoming monetary policy decisions.