All underlying inflation measures of the National Bank of Hungary (NBH) slowed down in March, the NBH reported. Their dynamics was in unison with the weakening of the headline and core inflation during the month, reported by the stats office earlier today. In particular, demand-sensitive inflation was down to 1.6% y/y, which was the weakest reading since Mar 2015. Tax-adjusted core inflation slowed down to 1.2% y/y and sticky-price inflation – to 1.8% y/y. Tax-adjusted core inflation seemed to remain stable in the past several months whereas sticky-price inflation has returned on a gradual downward trend since mid-2015, in our opinion.
The NBH maintained its evaluation that the underlying inflation measures continued to signal a moderate inflation environment. The weakening in headline inflation during the month was due to lower fuel prices on account of a base effect, it said. On the other hand, underlying inflation measures were broadly unchanged m/m in March, it pointed out. The contribution of demand-sensitive goods to inflation has been stable in the recent month while cost-sensitive products, like fuels and energy, have had a downward impact, the NBH said. Tradable prices were mostly flat m/m in March but have been higher than the average of the past 16 months, it added. It explained the strengthening with rising domestic demand and noted that prices of both durables and non-durables rose, the latter partly on account of the volatile air fares. Services inflation developed in line with seasonal trends in March, the NBH said. Processed food prices declined significantly in seasonally-adjusted terms because of falling milk prices while adjusted unprocessed food prices were flat m/m.
Households’ inflation expectations were unchanged m/m and remained at moderate levels below the tolerance band around the mid-term inflation target, the NBH said.