February inflation data is being overshadowed by the current market situation

Today’s inflation data was better than expected, which is good news and is below the MNB’s tolerance band. The trends are also favorable in terms of the two largest categories. Food inflation has almost disappeared on an annual basis, with last year’s base also playing a major role in this. In the case of services, it is also positive news that the annual price increase rate is showing a downward trend. The first two months of data show that there were no significant price increases, which is also encouraging.

According to our base scenario, we expect the annual average inflation rate to be 2.9% this year, but due to the uncertainties caused by the Iranian conflict, we currently see upside risks of several tenths of a percentage point. The newly introduced fuel price cap will temporarily offset the significant price increase, but this may have the effect of restricting trade at gas stations. We continue to expect the margin caps to be eliminated this year, and if this were not to happen for some reason, it would pull down our annual average forecast by a similar magnitude.

The markets welcomed the US President’s statement that the Iran war may be coming to an end. Currently, expectations have grown that the conflict in the Middle East and the situation at the Strait of Hormuz will not last long, as a sustained and significant increase in energy prices is not in the interest of global market players either. In addition to yesterday’s forint exchange rate approaching 400 and the strengthening of geopolitical risks, the question was whether the central bank could avoid raising interest rates. As of this morning, geopolitical risks appear to be easing, the forint has strengthened significantly compared to yesterday’s level, and inflation has become more favorable than expected. As a result, domestic interest rate hike expectations have also started to come into play.