CPI further slowed to 3.5% y/y in December
Consumer prices declined 0.3% m/m in December. Thus, the 12-month inflation rate further slowed to 3.5% (from the 4.2% published for November). The 2008 annual average inflation rate was 6.1%. The December actual figure did not come as surprise, meeting market expectations. As expected, the main driver of the December slowdown was the 9.4 m/m decline in fuel prices, which pushed the headline index down by another 0.5 percentage points. Other items did not show significant changes on monthly level. (Food prices rose slightly (0.2% m/m)). The seasonally-adjusted core inflation rose 0.2% m/m. Thus, the 12-month core rate also slowed, to 3.8% from 4.1% y/y, seen in November.
The disinflation process is to continue in the coming months, mainly driven by the food and fuel factors and despite the weaker forint, inflation will reach the 3% mid-term inflation goal already in 1Q09. The inflation outlook allows the continuation of rate cuts for the central bank next Monday, however, current market turbulences make this scenario less certain. Nevertheless, we can not exclude that the CB will carry out a rate reduction, however, the magnitude of it may be just 25bp, instead of 50bp, seen in the previous months.
