The FINANCIAL — Hungary’s consumer price inflation slowed in July more than expected, warranting no change to monetary policy after the central bank said last month that its rate-cut cycle was over and that it is committed to keeping interest rates low for a long time, according to Nasdaq.
Consumer prices remained steady on the month and rose 0.4% on the year in July, a deceleration from 0.2% and 0.6%, respectively, in June, the central statistics office KSH said on August 11.
That was less than forecast in a poll of 10 economists by The Wall Street Journal who saw an inflation rate of 0.1% on the month and 0.5% on the year.
Annual inflation returned with a bang in May after consumer prices remained more or less steady or fell during the previous 16 months.
In July, annual inflation slowed as fuel and household energy prices fell sharply from a year earlier. Fuel prices pulled the yearly figure a 0.2-percentage-point lower, KSH said. Food, tobacco, alcoholic drinks, services and consumer durables prices, meanwhile, increased.
Annual inflation in July remained far below the central bank’s 3% medium-term target. It is set to accelerate by the end of the year but will remain below the target rate throughout next year, analysts said. The National Bank of Hungary cut its policy rate to a record low of 1.35% in July to reach the inflation target.
While headline inflation is expected to accelerate to above 2% by December, from July’s 0.4%, it is set to remain below the central bank’s 3% inflation target throughout next year, Takarekbank said.
“That means Hungary may keep its policy rates persistently low and a small rate increase may only come in the autumn of 2016 at the earliest,” Takarekbank economist Gergely Suppan said.
With inflation seen accelerating, more economists are warning that interest rates in real terms—adjusted for inflation—could turn negative in the fourth quarter of 2015 and the first quarter of 2016, a potential risk to the country’s currency and financial markets.
Core inflation, which excludes volatile raw food and oil prices, tracking underlying inflation trends, was 0.1% on the month and 1.3% on the year in June, against a 0.1% increase on the month and an upwardly revised 1.3% rise on the year in June. In July 2014, core inflation was 2.5% on the year.