News
BG: Neutral – June CPI comes in at -0.9% mom (p2)
CZ: Positive – June CPI drops to 1.8% yoy vs 2.1% yoy market cons
HU: Positive – June CPI drops to 3.5% yoy form 3.9% yoy
SK: Positive – June CPI remains flat mom (p2)
SRB: Positive – June CPI falls 0.3%mom (12.7% yoy; UCCIB 13.0%yoy) (p2)
Today’s Events
HU: Buy-back auction / KZ: KZT 12bn 2014 auction / PL: June CPI / RU: CPI YTD, June Budget level, RUB 30bn 2021 OFZ auction
EEMEA Markets
In Czech Republic June CPI dipped 0.2% mom, bringing the yoy index two notches lower to 1.8%. The reading was well below the consensus and our forecasts at 2.1% yoy, while beating the CNB’s prediction made in May by one notch. Core seasonally adjusted inflation dropped 0.41% mom. Food prices were the key force driving CPI downward, shedding 1.5% mom and easing the yoy rise to 4.8% from last month’s 6.7%. Minor reductions in yoy indices were also observed in alcoholic beverages; clothing and footwear; household equipment; transport; recreation and culture; and restaurants and hotels. The only two groups with rising yoy indices were housing (due to natural gas price adjustments) and miscellaneous. One identifiable reason behind the CPI decline was the reduction of vegetable prices caused by the e-colli hysteria. The effect is set to be short-lived. That said, it explains less than half of June CPI’s deviation from our forecast, with a variety of other factors also at play and looking more permanent. We have cut our CPI forecast for the reminder of 2011 by 0.2%-points, and now expect December CPI at 1.9% yoy. While the CNB’s policy should be more forward looking, we cannot rule out that the persistence of sub-2% CPI will delay the start of monetary tightening until 4Q. In Hungary headline inflation in June also receded 0.2% mom, against our anticipation of stagnation, easing the annual CPI further to 3.5% from 3.9% in May. Beside the 1.1% lower automotive fuel prices, basically food, especially vegetables, was again able to generate disinflation via a 1.2% monthly price fall. It appears that cheap food imports de facto blocked the effect of agricultural price shocks, as less than one third of the agriculture price index passed through to food prices, which have moderated to 7.3% from the February peak of 9.7%. Except for recreation related consumer goods, prices of all the other items followed the usual seasonal pattern. During the summer months food is expected to get cheaper, probably by slightly more than before given the new weighting methodology applied, while global fuel prices suggest that the item is supposed to work against the general easing trend. The recently passed law on “chips tax” carries additional inflationary upside risk together with the so far untreated question of frozen household energy prices. By the end of the year inflation may descend as low as 3.1% while for the whole of 2011 we estimate average CPI at approx 3.8%.
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Pavel Sobisek / Tibor Nagy
UniCredit Research