Food prices rose 5% year-on-year, and alcohol and tobacco products were up 13.8%. Household energy costs increased by 6.7%, but the price of consumer durables dropped 1% last month. Food and tobacco prices rose at a faster pace than projected and the impact on inflation of the decline in fuel prices has been slower than thought, Takarekbank analyst Gergely Suppan said.

The telephone and financial transaction taxes may drive headline inflation numbers higher in coming months, peaking near 6% in September, but the impact will be limited due to muted domestic demand.

Inflation could decelerate to 5% by December, resulting in an average consumer price rise of 5.5% for 2012. Inflation could stabilise at 3.5% later next year, which is higher than the MNB's 3% target set for mid-2013, but below the government's 4.2% goal.

Suppan would not rule out a cautious and gradual rate cut by the MNB based solely on inflationary developments, but strong financial stability risks do not allow such a move, Nepszabadsag writes.

The government has very little room to manoeuvre in its talks with the IMF, as it is sticking to the flat tax and shuns a wealth tax, while uncertainties remain over meeting revenue targets from the financial transaction tax, Citibank analyst Eszter Gargyan said. Rate cuts can only come later in the year following an agreement with the IMF.

Source: Hungary Around the Clock

This news item is one of many published daily by HATC, a premier subscription news service which distributes English-language info about Hungary via email or fax. For a free trial of HATC follow this link and click on 'Free Trial Subscription'.