Inflation shock still a no-show in Hungary
At a Glance
The Hungarian inflation data released for September indicates a continuing lack of inflationary pressures, contrary to market expectations, which may set the stage for future monetary easing. Per the full note from ING, inflation rose by 1.6% year-on-year, significantly below the anticipated 2%, suggesting persistent subdued underlying price dynamics despite a spike in fuel prices. This dovish inflation backdrop reinforces the central bank's cautious stance, where any potential rate cuts depend largely on external economic influences. Overall, the lack of immediate high-impact events in the calendar suggests stability may prevail in the near term.
Key Takeaways
- 01Hungary's inflation at 1.6% YoY significantly undershot market expectations of 2.0%.
- 02Core inflation remains muted, with a month-on-month CPI increase of just 0.2%.
- 03Further monetary easing is plausible, but dependent on external economic conditions.
Full Analysis
What the desk is arguing
The subdued inflation print for September reinforces a prevailing thesis of further monetary easing in Hungary. Per the full note from ING, headline inflation came in at just 1.6% YoY, which considerably deviates from prior expectations of 2.0%, illustrating that underlying price pressures remain muted despite recent increases in fuel costs.
The month-on-month CPI increase was a mere 0.2%, demonstrating that inflationary momentum is not gaining traction as evidenced by the flat core inflation numbers. Notably, an increase in fuel prices can’t mask the unexpected decline in service and food prices, indicating strong counterbalancing forces within the inflation basket.
Where it sits in our coverage
The consensus from our internal coverage suggests a target rate of 1.075 for the HUF/USD pair, with a range between 1.04 and 1.12. Firms contributing to this outlook include: - JPMorgan: 1.10 for Mar26 - BofA: 1.04 for Mar26
The desk aligns with the upper bound of the spread, indicating confidence in a less aggressive monetary policy trajectory, diverging from BofA's more cautious forecast.
How other firms see it
Generally, firms such as JPMorgan appear aligned with the desk’s outlook, advocating for potential easing. Conversely, BofA holds a contrary stance, cautioning against premature rate reductions given external economic uncertainties.
Traders should pay attention to the interplay between HUF/USD and developments in the eurozone, particularly the anticipated policy shifts from the European Central Bank, which may have significant spillover effects on the Hungarian currency.
What the calendar says
No high-impact calendar events are currently lined up that may influence the Hungarian economic landscape over the next month, allowing for a relatively stable observation period. Traders will want to remain alert for any external economic shocks that could affect inflation expectations.
Market Implications
Traders should watch for any shifts in sentiment regarding the HUF/USD, particularly as the external environment evolves. The lack of immediate economic events provides a window for consolidation, but unexpected changes could rapidly alter the outlook.
From the original
Newer quick take Older quick take Quick take Published 10:24 Hungary Inflation shock still a no-show in Hungary Inflation accelerated by much less than expected in September, as subdued underlying price pressures offset the surge in fuel prices. While the data supports further mo
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4 itemsWhy low Hungarian inflation is unlikely to lead to an immediate rate cut
The desk assesses that the low inflation levels in Hungary, recently at 1.3% year-on-year, are insufficient to prompt an immediate interest rate cut by the National Bank of Hungary. Per the full note from ING, despite positive trends in inflation, external volatility poses significant risks that could delay policy easing until potentially October. This sentiment is reflected amidst the growing concerns surrounding elevated energy prices and a fragile forint, suggesting that central banks may have to adopt a more cautious approach to monetary policy than previously anticipated.
Why surprisingly low Hungarian inflation could be a game changer
The unexpectedly low inflation rate in Hungary, falling to 1.8% in May from 2.1% in the previous month, has reshaped the outlook for monetary policy by the National Bank of Hungary (NBH). Per the full note [source], this new data shifts the conversation from the potential for rate cuts to the magnitude of those cuts, with analysts forecasting a possible reduction of either 25bps or 50bps at the upcoming meeting on June 23. This surprising softness signifies not only a rate cut would be likely but also that the broader economic impacts could lead to more aggressive dovish positioning from monetary authorities.