RTTNews - Hungary's consumer price inflation climbed in May, mainly due to higher prices of food, data from the Hungarian Central Statistical Office showed Thursday.

Consumer prices increased 3.8% year-on-year in May, faster than a 3.4% rise in April. Economists expected prices to rise 3%. Among the sub groups, food prices increased the most on an annual basis, rising 7.2%, much faster than a 4.2% rise in the previous month. At the same time, utilities prices rose 8.5%, but slower than a 11.3% increase seen in the past two months.

Month-on-month, consumer prices were up 1.5% in May compared to a 0.8% increase in April.

The core consumer price rose a seasonally adjusted 3.1% year-on-year, and was up 0.4% on a monthly basis in May.

The harmonized index of consumer prices or HICP climbed 3.8% annually in May, and was up 1.5% compared to the preceding month.

Commenting on the latest data, Lars Christensen, chief analyst at Danske Bank called the latest increase in inflation a nasty surprise. According to him, the rise in food prices is mainly a reflection of the fact that retailers are probably passing on the impact of the weaker forint to consumers.

A sustained increase in inflation ought to be a worry for the Hungarian central bank. Going forward, a proposed hike in the value-added-tax, starting July, will push inflation up further, Christensen noted. The central bank had left its key interest rate unchanged at 9.5% for the fourth month in a row in May.

Inflation could reach as high as 9% by year-end and cross to double digits in the event of a sell-off in the forint, the analyst said. Therefore, it is also clear to us that there is absolutely no room for monetary easing in Hungary despite the serious drop in economic activity we have seen.

Danske Bank also sees significant upside risks on Hungarian rates and yields due to market expectations for rate cuts over the next 12 months. The analyst warned that the ongoing crisis in Latvia and the risk of contagion could also hit the Hungarian fixed income markets which would probably push rates and yields even higher.

In the meantime, a report released today by the GKI Research Group showed that the consumer confidence increased in June to minus 64.3 from minus 68.3 in May.

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