Consumer prices were 3.7% higher on average in June 2024 than a year earlier, the Central Statistical Office (KSH) reported on July 9. On a year-on-year basis, a price increase of 1.1% was recorded for food, within which the price of sugar increased most (by 27.4%), while the most significant drop was seen in the cost of eggs (a fall of 22.3%).

Services became 9.7% more expensive. Alcoholic beverages and tobacco prices rose by 4.2%, within which the cost of tobacco was up by 4.7%. The price of pharmaceutical products went up by 6.1%. Electricity, gas, and other fuels became 2.7% cheaper, while natural and manufactured gas fell by 5.2%, and electricity was 2.4% less expensive.

Compared to May, prices were unchanged on average, and food prices inched down by 0.3%. This can primarily be attributed to the lower cost of seasonal food items such as fresh vegetables and fresh domestic and tropical fruits. Food prices excluding this group went up by 0.2% on average.

The highest price increases were measured for alcoholic beverages and tobacco, and services (up by 1% in each case). Within the latter, recreational services were up by 4.4%, there was an increase of 1.4% for the maintenance costs of private houses, and rents were up 1.1%. Electricity, gas and other fuels cost 2.3% less on average, while motor fuel prices were down by 3.4%.

The latter might have come as a surprise to the government as well, as it was only a few days before the KSH report that Minister for National Economy Márton Nagy had warned the representatives of the fuel dealers to keep the rising fuel prices under control, particularly compared to prices in neighboring countries, or be prepared to face the consequences.

‘Unacceptable and Unfair’

The head of the ministry said he expects immediate steps from the fuel dealers to eliminate this “unacceptable and unfair situation” and to lower domestic fuel prices below the average of neighboring countries as soon as possible. He stressed that if there was no movement towards a price decrease, the government was ready to intervene in the fuel market with regulatory tools to protect families.

The drop in the price of fuel is only surprising at first; one reason for it may simply have been that the average cost for the first 20 days of May was higher than the same data for the first 20 days of June. Therefore, the price increase calculated for July could likely be significant.

Overall, the June inflation data surprised the market analysts, who had anticipated a slightly higher figure.

“Although the disinflation process broke after March, inflation remained within the inflation target range of the MNB, and in the next three months, the base effects may even be supportive in terms of the decrease in the annual rate of inflation,” Zoltán Árokszállási, head of the analysts’ center at MBH Bank said.

“At the same time, the recently accelerated price increase of fuels represents an upside risk. We have reduced our inflation expectations for this year to 3.8% on an annual average, even though it is almost certain that, by the end of the year, inflation will be significantly higher than the current level. At the same time, it is unlikely that the annual inflation rate will rise above 5% by the end of the year,” Árokszállási predicted.

According to the head analyst, alongside fuel price developments, the critical issue for the coming months will be the price of services. The 1% monthly price increase is still high in this category, and although it is less justifiable for last year’s annual inflation to be the basis for pricing decisions, the inflationary pressure in this product range is apparently tricky to moderate.

Invigorating Demand

That is partly explained by the invigorating internal demand. At the same time, in the other major product range, food, Árokszállási perceives more downside risks, considering the development of world market prices.

“Overall, with our annual average inflation forecast of 3.8%, we currently perceive roughly balanced risks,” he concluded.

Gábor Regős, the chief economist of Gránit Alapkezelő, also acknowledged surprise at the June figures, noting that most analysts expected a minimally decreasing or stagnant monetary deterioration. However, it is important to note that the significantly increased food prices of recent years have stayed with us. Behind the latest 1.1% increase in the category, there is a significant deviation: the cost of flour, for example, fell by nearly 20%, while that of sugar increased by more than a quarter in a year, he explained.

However, it is worth delving more deeply into the inflation data. Core inflation increased from 4% to 4.1%. Disinflation is helped chiefly by items outside of the so-called core inflation, whose price developments are volatile and do not necessarily follow the basic inflation trend.

It is also important to note that the June inflation data was not affected by the end of the mandatory promotions. The Ministry for National Economy recently announced that, as the government has successfully suppressed the double-digit wartime inflation, the mandatory promotions supporting family purchases would end in July.

That meant that, by the end of June, several staple products had to be sold off, and they were 10-15% cheaper than the lowest prices typical of the previous month. Naturally, their prices will also rise when the measure ends. Thus, products such as sugar, wheat flour, refined sunflower oil, several chicken cuts, some UHT milk, eggs and potatoes might gradually become more expensive again in the coming months.

This article was first published in the Budapest Business Journal print issue of July 12, 2024.