Food Prices Expected to Support Steady Pace of Disinflation

Hungary CPI data is on the docket later this morning (0730BST/0830CET). The median of the Bloomberg consensus sees disinflation continuing course with prices rising 17.7% y/y in July from 20.1% prior. Nevertheless, FX volatility, rather than an upside inflation surprise, poses more risks to the NBH’s projected easing path going forward, with monthly 100bp cuts well projected.

• Goldman Sachs forecast inflation to continue to decrease from 20.1% y/y to 17.9% with favourable base effects in food as well as alcohol and tobacco to be the main contributors to the decrease. However, Goldman Sachs remain concerned that Hungary’s tight labour markets will in the medium-term make it difficult for the NBH to bring inflation back to target. In the near term, they see the recent depreciation to the Forint as the main upside risk to their inflation forecast.
• ING see strengthening disinflation on the back of dropping food prices. While rising prices in fuel, services and durables will push inflation higher, the downward impact coming from food will counterbalance these, ING say. As a result, they see 0.1% m/m deflation in July. This, combined with a significant base effect, will translate into a drop in the yearly index to 17.3%. Core inflation will go through roughly the same change in size, resulting in a 17.8% y/y figure in July.