K&H Analyst Commentary: Inflation was worse than expected

Prices rose by 4.3 percent on an annual basis in July, and by 0.4 percent compared to June. Dávid Németh, evaluating the data, said: “The actual data is a surprise, because the market and we expected that the annual price increase slowed to 4-4.1 percent in July from 4.6 percent in June.” The worse-than-expected data is partly due to the increase in the price of household energy. In addition, previous communication indicated that a significant price decrease could be expected for medicines, while they became cheaper by only 0.3 percent on a monthly basis. Food prices rose by almost 6 percent on an annual basis, and by 0.4 percent on a monthly basis – excluding catering. Furthermore, the price of services also rose significantly on a monthly basis.

“However, it can be highlighted as a positive that the relatively strong forint is holding back the prices of industrial goods, including consumer durables, which are typically imported. It is also positive that core inflation, calculated without official and volatile food and energy prices, slowed to 4 percent from 4.4 percent in June,”

– added the expert.

The expert said that due to the recent inflation data, the Magyar Nemzeti Bank will remain cautious in the future – as it has been so far – and will only decide on a possible easing, i.e. a reduction in the base rate, if inflationary pressure decreases permanently. Regarding this, Dávid Németh said: “We previously expected that an interest rate cut could take place in the last months of the year this year, but the chances of this have decreased significantly in light of the current inflation data. Moreover, a possible interest rate cut largely depends on the international economic environment, such as the impact of the United States’ tariff policy on global and, through it, Hungarian prices.”