Inflation Could Fall More Sharply than Expected in January

Another surprise in the inflation data cannot be ruled out after December. Consumer prices rose by 5.5% in the last month of the year, clearly better than experts’ expectations. According to analysts interviewed by Világgazdaság, a growing number of factors point to the continuation of this favorable trend in early 2024. Thus, price pressures in the economy may have eased more than expected, driven by both last year’s high base (25.7%) and the favorable macroeconomic environment.

Zsolt Becsey Jr., Chief Economist at UniCredit Bank, said that “inflation could easily return to the central bank’s target range for the first time in a long time.”

The analyst expects inflation to be around 4% in January.

He also believes that this could be accompanied by positive or negative surprises. In the event of an upward shift, repricing at the beginning of the year could be decisive: on the one hand, a visible monthly increase in food prices cannot be ruled out, while on the other hand, price increases in services could also be possible, although the March data is more likely to be exciting.

“We now expect prices to have risen by 1.2% on a monthly basis, implying an annual inflation rate of 4.4% for the first month of the year. At the same time, the estimate is complicated by the fact that the new weights of the inflation basket will be published by the Hungarian Central Statistical Office in January, which could influence the impact of certain goods and services on inflation,” Dániel Molnár, senior analyst at the Makronóm Institute, told Világgazdaság.

The expert added that

the January data is highly relevant for inflation, given that most companies only change their prices at the beginning of the year.

He also pointed out that the increase in excise duty on vehicle fuels played a role in the monthly price increase, but tolls and postal service charges also increased significantly at the beginning of the year. In contrast, the Institute of Agricultural Economics survey showed that retail food prices remained unchanged on average on a monthly basis. Compared with December, the rise in butter and vegetables was offset by a fall in pork, flour, and bread prices.

Péter Koncz, junior analyst at Századvég, believes that

this is the result of tight monetary policy.

On the one hand, it encouraged households to save rather than consume and supported the stability of the forint, while on the other hand, falling retail sales also led to a decline in the rate of money depreciation, with retailers less able to enforce price increases in this environment.

Molnár expressed the opinion that the lower prices for gas and electricity in the new year will allow companies to make cost savings that will help them finance part of the wage increases. In his view, inflation risks are much more related to the evolution of world oil prices, strongly influenced by the conflict in Israel, the forint exchange rate, and if companies react to the strengthening of domestic demand with more aggressive pricing policies.

Via Világgazdaság, Featured image: Pixabay