Industry Breaks Records, Inflation Moves Closer to MNB’s Target


Breaking a more-than-two-year record, Hungary’s industrial output rose by an annual 12% in July. According to figures published by the Central Statistical Office (KSH), the production rose by 8.7% based on working-day adjusted data.

In a month-on-month comparison, output in July was up 1.7%, KSH said. Year-on-year output of Hungary’s automotive sector, an engine of industrial growth (if you will pardon the pun), rose by 34.6% in July; the highest rate in years, albeit from a low base, KSH said. In the period January-July, industrial output increased by 6.3% year on year.

KSH noted that the vast majority of manufacturing subsections contributed to the increase. The manufacture of transport equipment, representing the largest weight, grew significantly; at the same time, the manufacture of computer, electronic and optical products, as well food products, beverages and tobacco products grew, but at a rate below the industrial average.  

The latter was a result of a favorable tendency in both domestic and export sales, KSH said. Within the manufacture of food products, decreases were recorded in two groups only: in processing and preserving of fruit and vegetables (17,1%), and in the manufacture of tobacco products (7.3%), which carries only a small weight in the overall figures.

As for geographical breakdown, industrial production grew in every region. The highest volume growth was observed in Western Transdanubia (21%); all others regions saw volume increases of between 3.1% and 16.6%.

Total new orders volume in the observed subsections of manufacturing rose by 11% compared to the July 2018 data. New domestic orders volume increased by 14.7%, new export orders grew by 10.3%. The volume of total stock of orders at the end of July was above the previous year’s level by 0.5%

The performance of the Hungarian industry is way above that of the EU and especially of Germany, Takarékbank analyst Gergely Suppan commented on the data. He reasoned the good performance was the result of the production of new automotive models, deploying new export capacities and also with strong domestic demand.  

As for downside risks, the analyst mentioned the weakening European economies, the slowdown of the global economy, including the Chinese market, and also uncertainties caused by Brexit. However, all of these have already had a slowing effect on industrial performance, he said. As for the full year, Suppan expects an annual growth of 5.5-6%, following a 3.6% increase in 2018.  

Inflation Down

In the meantime, consumer price inflation in August was getting a bit closer to the mid-term target of the National Bank of Hungary (MNB) and came in at 3.1%, down from a 3.3% year-on-year increase in July.

The KSH reported that food prices were up by 5.6% in the last month of the summer, with seasonal food prices rising 13.7%. Pork prices rose 11.5%, the price of flour was up 11.3%, and the price of bread gained 8.4%, while milk prices were 5.2% lower year-on-year. Prices of alcoholic beverages and tobacco rose by 8.8% on average year-on-year, within which tobacco prices rose 12.8%. Consumers paid 2.8% more for services, within which rents increased by 10%. The price of motor fuels fell by 2.6% year-on-year in August.

The MNB’s measure of core inflation, excluding indirect tax effects, was 3.2% in August, level with the previous month.  

The underperformance of the Hungarian currency hasn’t influenced consumer prices, says Péter Virovácz, head analyst at ING Bank. According to him, the latest CPI data justifies the monetary policy of the central bank, as it underlines the expectations of the MNB about inflation becoming gradually more moderate by the second half of the year. As inflationary trends do not indicate a need for any changes in monetary policy, the central bank now can focus on the decision of the European Central Bank and the Federal Reserve, said Virovácz.  

Inflation moving back closer to the target was not the result of a lower core inflation but due to a fall in oil prices, which reduced fuel prices as well, Gábor Regős of research institute Századvég pointed out.  

He also thinks that the forint exchange rate and oil prices will have a visible effect on inflation in the remaining months of the year. If the Hungarian currency remains weak in the longer run, the inflation rate might reach the top of the target set by the central bank.  

Analysts at Takarékbank now forecast an annual inflation rate of 3.4%, following a 2.8% rate last year. K&H Bank head analyst Dávid Németh agrees on the level of annual average inflation, but says that inflation might reach 3.8% by the end of the year.

Central Bank Governor Scolds Finance Minister for Comments on Economy 

The governor of the National Bank of Hungary, György Matolcsy, has harshly criticized Minister of Finance Mihály Varga for saying that the Hungarian economy’s “golden age” will soon come to an end due to a possible slowdown. In an opinion piece published on, a financial site strongly linked to the MNB, Matolcsy argued that the golden age will last for decades and we will soon catch up with Western economies. “Why shouldn’t we question the words of a finance minister if those run counter to the nation’s desires and the plans of the government?,” the governor asked.

Numbers to Watch in the Coming Weeks

The next two weeks will not see a very crowded macro calendar: the Central Statistical Office will publish employment and unemployment figures for the June-August period on September 27. A few days later, earnings for the January-July period will be released.

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