Hungary’s inflation rate rose less than economists forecast because of government-mandated reductions in household energy costs, bolstering the case for policy makers to cut record-low interest rates further.
Consumer prices advanced 1.8 percent from a year earlier in May after rising 1.7 percent the previous month, the slowest pace since June 1974, the Budapest-based statistics office said today. The median estimate of nine economists in a Bloomberg survey was for a 1.9 percent increase. Prices fell 0.1 percent from April.
“The slow pace of annual price growth was principally caused by the significant reduction of household energy prices,” the statistics office said in a statement.
The Magyar Nemzeti Bank lowered the benchmark two-week deposit rate to a record low 4.5 percent last month from 4.75 percent, the 10th quarter-point reduction in as many months. Policy makers said they may cut the rate further after the inflation rate plunged and as policy makers seek to boost bank lending and economic growth.
The central bank “is considering ways to signal to the market the principles for ending the rate-cut cycle,” MNB Vice President Adam Balog said on May 31, MTI state news service reported. The bank has an internal study on a “neutral interest rate,” which doesn’t necessarily limit an easing or tightening cycle, Balog said.
The forint, the top performer against the euro in the last three months among emerging-market currencies tracked by Bloomberg with a 0.5 percent gain, fell 0.5 percent to 300.37 against the common currency as of 10:03 a.m. in Budapest.
Household energy prices dropped 8.5 percent from a year earlier in May, while the cost of consumer durable goods fell 1.8 percent. Prices in the services industry rose 4.1 percent while alcohol and tobacco costs jumped 9.8 percent.
From April, prices of “other goods including motor fuels and other lubricants” dropped 1.6 percent, while food costs rose 0.6 percent, according to the statistics office.
Core inflation rate, which strips out volatile energy costs, was 3.2 percent from a year earlier in May and 0.2 percent from April, according to the statement.
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