Inflation shock still a no-show in Hungary
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
A shift in global economic conditions, especially pertaining to energy prices or geopolitical factors, could invalidate the current bullish view on easing and alter the inflation landscape significantly. Additionally, any resurgence in core inflation metrics would challenge the premise of a dovish monetary policy.
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 monetary easing, external risks may still keep the central bank cautious Hungarian inflation was remarkably subdued in September 1.6% Headline inflation (YoY) ING estimate 2.0% / Previous 1.3% Inflation delivered a dovish surprise According to the latest data released by the Hungarian Central Statistical Office (HCSO), inflation accelerated by much less than expected in September. Consumer prices rose by just 0.2% month-on-month, while the headline inflation rate increased to 1.6% year-on-year.
The latest figures continue to point to remarkably subdued underlying pricing dynamics. Core inflation was essentially flat on a monthly basis, with prices even declining marginally, pushing the annual core inflation rate down further. September's inflation data reinforces our view that domestic price pressures should allow for further monetary easing.
However, the timing of the next rate cut continues to depend primarily on the external market environment. Main drivers of the change in headline CPI (%) Source: HCSO, ING "> Source: HCSO, ING The details The acceleration in headline inflation in September was primarily driven by fuel prices. Motor fuel prices jumped by 5.9% MoM, adding around 0.4ppt to monthly inflation.
Given that the overall consumer price index increased by only 0.2% MoM, this means that significant offsetting forces were at work elsewhere in the inflation basket. Food prices surprisingly declined on a monthly basis, but the real surprise came from services, where prices fell by 0.5% MoM. A monthly decline in service prices is not unusual at this time of the year due to seasonal effects.
However, the magnitude of the fall is noteworthy given the still significant cost pressures facing companies. Taken together, these developments were sufficient to offset a large part of the surge in fuel prices. In line with seasonal patterns, clothing and footwear prices increased compared with the previous month.
Meanwhile, the weakening of the forint has yet to make a meaningful impact on either food or service prices, while durable consumer goods even became cheaper on a monthly basis. Composition of headline inflation (ppt) Source: HCSO, ING "> Source: HCSO, ING Core inflation continues to paint a favourable picture The most important message from the September data is that fuel prices were not the surprise; everything else was. Despite a weaker forint, elevated wage costs and rising energy and other input prices, there is still no sign of a broad-based wave of price increases.
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