Lower than expected CPI in January

In Ja140214_CPI_ENnuary, month-on-month inflation accelerated to 0.3% only (from -0,5% m-o-m in December), resulting in zero annual CPI for the month. This is considerable disinflation from 0.4% year-on-year in December, which had been, however, partly expected on base effects. Yet, slower than forecasted January inflation requires us to revise our annual average CPI forecast for 2014 from 1.5% to 1.2%. Annual inflation at the year-end is expected in the 2.5-3% range. Next year’s annual average CPI is foreseen at 2.8% in this context.

The forthcoming acceleration in headline inflation towards the end of the year is suggested by the fact that annual core inflation in January was 3.4%, just slightly below the 3.5% recorded in November and December 2013.

Based on today’s extraordinarily low CPI data, the Monetary Council of the MNB in theory could continue on cutting the base rate at its next week sitting. Yet, in the current global environment this could place untenable pressure on the forint, hence we expect no rate change.