Hungarian headline inflation likely to ease in quarters ahead, EUR/HUF to trade around 317 by end-2018

The headline consumer price inflation in Hungary surprised to the downside again yesterday. The CPI dropped to 1.9 percent year-on-year in February from January’s 2.1 percent year-on-year. The February figure is lower than the central bank’s lower target limit. Core inflation rate dropped to 2.4 percent, with tax-adjusted core inflation rate falling to 2.1 percent year-on-year, the lowest readings since last June.

The data affirm the Hungarian central bank’s expectation that inflation would first ease in the quarters ahead before it eventually rises again in 2019. The data released yesterday underpinned the idea that the central bank might decide to further expand its quantitative easing programs, particularly if bond yields were to continue rising driven by external factors.

“Chance of further monetary easing means that pressure would be for EUR-HUF to rise through the course of this year – we see EUR-HUF reaching 317.00 by the end of 2018”, said Commerzbank in a research report.

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