July inflation in Hungary was higher than expected

The surprise was basically caused by a faster-than-expected increase in the price of services and a stronger-than-expected increase in the price of food. Within services, the price of holiday services increased by more than 12%.On a monthly basis, the overall price increase in the service segment was 1.1%, while we expected a lower level of a few tenths of a percent. As expected, vehicle fuels increased the monthly index by 3.8%.

Today’s data is an unpleasant surprise.It is not necessarily the extent of the surprise (because in the annual index it is only one tenth of a percentage point compared to the 4.0% we expected), but the structure of inflation. The fact that services continue to rise in price by more than 9% on an annual basis is far from being in line with the MNB’s inflation target. With its value of 4.7%, the annual core inflation also exceeds the value of 4.6% expected by the MNB. The increase in the price of food was also higher than expected, we did not expect a particular increase in price here, but at the same time this group is excluded from the core inflation items.

At the same time, it can also be seen that the current negative surprise in services was basically caused by a very significant increase in the prices of holiday services, while in other product areas more moderate pricing is visible. In addition, the annual headline index can still be expected to drop below 4% in the coming months. What needs to be closely watched is the extent to which core inflation will continue to rise in the coming months. By the end of the year, the headline index is still expected to be around 4.5% after today’s data release. For the time being, we are maintaining our annual forecast of 3.8% for this year.