CPI slowed to 5.1% y/y in October
Consumer prices rose 0.2% y/y in October. Thus, the 12-month CPI inflation rate further slowed to 5.1% (from the 5.7% published for September). The y/y figure proved to be lower than both my expectation of 5.3% and the market consensus of 5.2%. Prices of food were up 0.3% compared to September, within which seasonal food prices increased by 3.5% m/m. As expected, prices of clothes increased substantially, by 4.9% m/m, based on the seasonality. Fuel prices dropped by 3.2% m/m. Regarding question marks around possible second round effects, it seems as favorable that prices of services remained unchanged in October, after 0.8% m/m drop, seen in September. The seasonally-adjusted core inflation rose 0.2% m/m. Thus, the 12-month core rate also slowed significantly, to 4.6%, from its September level of 5% y/y. We expect the disinflation process to continue in the coming months, as the base effect will remain supportive. As for 2009, despite the somewhat weaker forint, poor economic growth prospects could suggest further disinflation process.
For fundamental reasons, latest CPI inflation data suggest starting of rate cuts, after the 300bp emergency rate hike in October. However, such a step is unlikely to be carried out in the near period, given the fragile forint exchange rate and still extremely high risk premia on forint assets.
Market reaction: neutral
