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Wednesday, May 14, 2008

Hungary Inflation April 2008

Hungarian inflation remained at more than double the central bank's target in April, keeping pressure on policy makers to raise interest rates further in the coming months. The inflation rate fell to 6.6 percent in April, down slightly from 6.7 percent in March, the statistics office (KSH) reported today. Consumer prices rose 0.3 percent in a month, compared with the 0.4 percent expected by the analysts.

Core inflation, which strips out some volatile food and energy prices and is one of the central bank's most closely watched indicators, was 5.6 percent, compared with 5.3 percent in March. On the month, core prices were up 0.5 percent.

In April, the cost of food was 12.7 percent higher than a year earlier, the biggest annual increase since February 2007. Household energy inflation accelerated to 8.7 percent from 8.1 percent in March. Clothing prices increased 2.7 percent in the month.

The cost of health services dropped 18.2 percent from March and 12.6 percent from April 2007 after a referendum scrapped government-imposed fees on doctors visits and hospital stays.

Hungarian inflation has exceeded the central bank's 3 percent target since August 2006. The bank last revised its inflation forecasts in February, raising them to 5.2 percent for this year and 3.6 percent for 2009, up from a previous 5 percent and 3 percent.

Policy makers last month raised the benchmark interest rate to a three-year high of 8.25 percent and said they may lift it again as rising food and oil prices threaten to push up other costs like wages. The average monthly gross wage in February rose at an annual 13.4 percent rate.

Gábor Ambrus, 4Cast, London

“Hungarian Apr CPI came in at 6.6% y/y in line with mkt but above our call for 6.3% y/y. The structure is generally in line with our expectations, it is the food components that came in stronger than we had thought."

“Raw food up 1.9% m/m, processed food +1.4% m/m, a very sharp acceleration from Mar's reading. In raw foods it was pork that gave the big boost, indicating that the high feed prices are now trickling down to the meat chain."

Eszter Gárgyán, Citibank, Budapest

“The ending of hospitals and doctors' visiting fees decreased the headline CPI by 0.2 ppt (while other factors partially offset this development) in April, while excluding this one-off effect, seasonally-adjusted market service prices - which in our view are of primary importance to the trend in the inflation outlook - continued to rise to 6.2% YoY from 5.8%YoY in December 2007."

The forint traded at 249.52 per euro at 10:23 a.m. in Budapest, from 249.29 late yesterday. The currency reached a seven-month high of 248.68 yesterday. The yield on the benchmark three-year bond fell to 9.15 percent from 9.19 percent.

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