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Friday, September 14, 2007

Hungary Aug 2007 CPI

I'm a bit late posting about this, but somehow or other I didn't find the time. Hungary's CPI surprised on the upside last week, according to data released last week by the statistical office, rising 8.3% year on year in August from 8.4% in July. Core inflation fell to 5.4% from 5.6% yr/yr. Food prices seem to have been the main culprit and they continue to remain a key inflationary risk.

“The surprise came entirely from food prices, with other categories behaving as expected," Silja Sepping of Lehman Brothers said. The closely watched market services price fell modestly on an annual basis, as did tradable goods.

Inflation in unprocessed foods seems to have ticked up to 12% yr/yr from 9% in July while processed food inflation (that's part of core CPI) remained broadly unchanged. There are two main factors at work: i) sharp rises globally in wheat and maize prices; and ii) adverse weather conditions in Hungary over spring/summer this year.

Global trends have started to be reflected in items such as flour prices (up 7.1% m/m), egg prices (up 6.9% m/m), poultry meat (up 3.2% m/m, milk (up 4.3% m/m) etc. Given the modest increase in bread (1.7% m/m) in August. According to the Hungarian press, bread prices could rise by as much as 10-15% in the autumn.

This is obviously going to complicate the work of the central bank in terms of interest rate policy. As if things weren't already complicated enough.

Here is the chart of the annual rates by month, and as we can see annual changes in the CPI are remaining stubbornly high:

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