Food Processing Prices Continue To Soar

Eszter Gárgyán, Citibank, Budapest

“Food processing sales prices continued to soar, indicating that food prices are likely to rise further in the last two months of the year, which is likely to be a supportive factor for the hawks in the Monetary Policy Council (MPC)."

“Domestic sales price increases in the food processing industry accelerated to 2.4% MoM in October from 1.8% in August and September. Milk and wheat processing industries showed the sharpest rise in October, indicating to us that the sharp rise in processed food prices might not be over and that the CPI is likely to continue to surprise to the upside in November and December."

“Monetary policy decision-makers view both oil and agricultural price shocks as one-off factors to inflation, but acknowledge the upside risks to the medium-term CPI outlook related to the risk of elevated inflation expectations."

“Sustained food price shocks, causing an upside deviation from the National Bank of Hungary's (NBH) CPI forecast, are likely to strengthen the hawks in the MPC. We project that the CPI will continue to rise until January, due to food and regulated price hikes and will only start to moderate in February."

“In our view, the next rate cut may only follow in March at the earliest when January wage data - an important indicator of inflation expectations - and the February CPI will be available, but we see risks pointing towards an even slower rate-cutting cycle if wages fail to moderate in line with the NBH's projection."

Raffaella Tenconi, Dresdner Kleinwort, London

“The PPI number was driven by continuing elevated food and fuel prices, which confirm the upside risks to inflation in the near term and therefore the expectation that the MPC will keep interest rates on hold in coming months."

Source: Portfolio Online Financial Journal