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Post-Inflation Bounce in EURHUF Short-Lived

HUF
  • The post-inflation bounce in EURHUF proved to be short-lived, with the cross now down 0.15% at typing. While the more benign headline reading seemingly bolsters the case for the National Bank of Hungary to accelerate the pace of easing when they meet next on Feb 27, the month-on-month reading crossed at +0.7%, suggesting base effects drove inflation into the central bank’s tolerance band.
  • Indeed, food prices rose 1.2% m/m which suggests that momentum remains elevated, but its moderation on a year-on-year basis contributed to the overall decline in the headline figure given the high weighting of food in the CPI basket. On the other hand, the 0.5% m/m decline in fuel prices surprised expectations given the pre-announced increase in excise duty for January.
  • With EU-Hungarian tensions still elevated, the potential for any unfavourable HUF dynamics means more aggressive easing by the NBH is far from a foregone conclusion. Virag confirmed in January that fundamental factors (softer-than-expected CPI data, EU fund disbursement since December and an improvement in the current account position) would have facilitated a 100bp cut, but the deterioration in Hungary's risk assessment warranted the smaller 75bp move instead.
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