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Economy in Brief

CPI in Hungary and Czech Republic: Up, Down or Sideways?
by Carol Stone July 11, 2007

The Czech Republic and Hungary are not far apart in Central Europe, but their respective consumer price behaviors put them seemingly at the other end of the continent from each other. In the Czech Republic in June, the total CPI rose 0.3%, putting the last 12 months up 2.4%. Core inflation there was a mere 0.1% in June, following none at all in May, and a modest 1.2% over the year earlier. In Hungary by contrast, total CPI and the core rate both were 0.4% in June; total CPI was up 8.7% from the year earlier and the core, 5.9%.

"Core" in Hungary is defined as the total less most energy items, unprocessed foods and regulated prices. In the Czech Republic, the "core" excludes only regulated prices and tax and other administrative items. Both countries' data are contained in Haver's EMERGECW database.

Examination of the CPI categories in each country reveals that inflation is both higher and more widespread in Hungary. Nearly all segments show faster 12-month rates there. Food is up 10.3% year/year compared with 2.5% in the Czech Republic. Transport costs in June were 3.5% higher in Hungary and a mere 0.1% in the Czech Republic. Also, even a more discretionary component like recreation and culture rose 3.3% in Hungary but just 0.8% in Czech Republic. Communications prices stand out as an exception: they've been falling in Hungary, and in June were 4.1% below last year, while in the Czech Republic they've inched up 0.2% in the last 12 months and are now also declining, but only slightly.

All this said, we can't form broad conclusions about inflation prospects in either country. On a month-to-month basis, housing and transportation expenses are picking up in the Czech Republic: housing by 0.5 - 0.7% a month since April and transportation 0.8 - 1.0%. These calls into question how long the low inflation trend may be sustained there. Both these moves may represent stronger fuel prices. This is the case in Hungary for housing-related fuels, with natural gas up a dramatic 42% from year-ago amounts. The path of gasoline prices there has veered differently, however, and those prices went down sharply last autumn at the time natural gas prices were being raised. Clothing, an item with perhaps more flexible local markets than energy, is widely varying in both countries, and its performance within each country differs markedly from month-to-month. It looked, for example, that in the Czech Republic, those prices were on a rising trend in the early part of this year. But May and June have seen renewed declines, so perhaps the trend isn't shifting after all. The same swing has occurred in Hungary, but with a lead of about 3 months over the Czechs. So the recent performances of various prices in both countries are so disparate that we find a consistent inflation scenario within each one almost impossible to discern, let alone something common to both.

Consumer Price Indexes, % Changes June 2006* May 2006* Apr 2006* Year Ago 2006 2005 2004
Czech Republic 0.3 0.2 0.8 2.4 2.5 1.8 2.8
  "Core" 0.1 0.0 0.4 1.2 0.7 1.1 1.5
Hungary 0.4 0.5 0.4 8.7 4.1 3.7 6.8
  "Core" 0.4 0.2 0.2 5.9 2.3 2.1 5.8
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