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Saturday, August 30, 2008

Hungarian Producer Price Growth Moderates Slightly In July

Hungary's overall producer prices dropped 0.7% month on month in July, following a 0.5% decline in June, according to data from the Central Statistics Office (KSH) last Friday. The year on year rate dropped to 3.7% from 4.6% in the previous month.

Domestic producer price inflation was however up at 13.3% year on year in July (following a 12.1% rise in June) and in monthly terms domestic prices were up by 1.2%, following a 0.7% rise in June.

In contrast, export sales prices dropped in July by 3.4% year on year following a 0.8% annual decline in June. Month on month export prices dropped 2.1%, following a 1.4% drop in June.

The acceleration in domestic sales prices was largely driven by the energy sectors (oil processing, electricity, gas and water supply), which suggests that a significant part of these energy price increases will find their way into the CPI in the coming months, slowing down the disinflation process.

There was a 0.1% month on month drop in food processing prices, which suggests that the sharp correction in non-processed food prices during the summer months is likely to limit the rate of increase in processed food prices, which may offset the effect of energy price rises in the CPI to some extent.

The shadow of the strong forint obviously lingers over the current PPI figures, and especially the export component, since the direct impact of the forint is immediate and the change from June to July was quite steep.

Meanwhile the domestic prices component, which is in fact far more telling about the underlying domestic inflationary pressures, edged higher, and the 13.3% year on year is not good news at all for the CPI as we forward.

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