Hungarian inflation remains on a downward slope

Headline inflation in Hungary came in at 2.7% year-on-year in November, slowing further down compared to the previous reading.

However, the fall was driven by factors which are excluded from the core inflation basket.

• Fuel prices dropped by 3.2% on a monthly basis, which translated into a 7.6% year-on-year deflation in November. The change compared to the previous month explains 0.15ppt from the drop in the headline reading.
• Another non-core factor depressing inflation was related to free public parking from November. This change itself means a 0.2ppt decrease in the CPI and responsible for the decrease of the inflation in services
• Speaking of services, the 1.9% YoY reading is the lowest in two years. However, other than parking services, other categories showed stagnation or a slight increase in prices
• As the pressure on the forint eased in November, inflation in durables also headed south, shrinking to 2.6% YoY. This change was more than counterbalanced by the picking up price increase in alcoholic beverages and tobacco, where the Statistical Office measured a 6.6% year-on-year inflation
• Change in food prices was a mixed bag with the unprocessed food inflation easing mainly on fruits, meats and milk, while edible oil, soft drink and preserved food showed a significant pick up in prices

As mainly non-core elements were behind the drop in inflation, it hardly comes as a surprise that core inflation showed a marginal increase of 0.1ppt to 3.9% YoY. Tax effects remain strong (mainly on excise duty changes), so core inflation excluding indirect taxes came in at 3.3% YoY.

With that, the indicators which are important for the National Bank of Hungary (headline and core ex-tax) have remained around the inflation target.