Record low inflation in August

Having dropped by 0.3% month-on-month in July, prices decreased by exactly the same measure in August on a monthly basis. This means 1.3% inf130911_Infláció_13_aug_v2_EN_v2lation for August year-on-year – a new record low in the current disinflation cycle and a rather slow level of price growth in European as well as regional comparison. Inflation decelerated primarily on two accounts: seasonal food items and public utilities. The latter came about in the wake of the government’s regulated utility cuts with a new wave taking place in July. Interestingly, Eurostat-definition based harmonized inflation attained -0.1% m-o-m and 1.6% y-o-y. Core inflation, on the other hand, was 0.3% m-o-m and 3% y-o-y, demonstrating significantly higher autonomous price dynamics when food and energy prices are not taken into consideration.

In the coming months, we expect similarly low inflation dynamics that may well result in headline annual inflation rates below 1% in September-November. For 2013 on average, we forecast 1.7% inflation, followed by 2.5% next year.

The MNB is likely to continue its monetary easing cycle with the base rate expected to touch bottom at about 3.5% this year.