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Inflation in Hungary on the Rise Again

Analysis

Although prices fell by 0.1% in May from April, the 12-month inflation index rose to 4%. This means that the annual price index grew for the second month. Analysts expect further upward movement in the following months.

In May, consumer prices were 4% higher on average in May 2024 than a year earlier. Compared to April, prices decreased by 0.1% on average, according to the latest figures released by the Central Statistical Office (KSH). In April, the annual inflation was 3.7%.

On a year-on-year basis, a price increase of 1% was recorded for food, within which there was a 29.6% rise for sugar, chocolate and cocoa was up 9.8%, fruit and vegetable juices rose by 9.5%, buffet products were up 8.8%, with rises of 8.6% for pork, 8.1% for meals at restaurants and 5.6% for non-alcoholic beverages.

There was better news within the product group: egg prices decreased by 22%, the cost of flour by 19.6%, that of milk products by 11.6%, pasta product prices by 10.6%, the prices of milk and bread by 9% each, cheese by 7.4% and poultry meat prices by 6%.

Services became 9.5% more expensive, and Alcoholic beverages and tobacco prices rose by 3.5%, within which tobacco went up by 3.8%. The price of pharmaceutical products grew by 6.4%, while electricity, gas and other fuels became 2.4% cheaper. Motor fuels, however, became 9.2% more expensive.

Consumer prices decreased by 0.1% on average compared to the previous month. The highest price increase of 0.9% was measured for services, while electricity, gas and other fuels fell by 0.9%. Consumers had to pay 1.7% less for natural and manufactured gas. Motor fuel prices fell by 4.4%.

Low Tide in March

The 12-month inflation data reached its lowest point in March at 3.6%. However, according to the Portfolio analyst survey, the 4% annual pace in May is a good figure, even compared to the fact that analysts expected an average 12-month monetary deterioration of 4.2% for May. On a monthly basis, prices last decreased in December last year, when the KSH measured a 0.3% one-month price decrease.

“As for the monthly price changes, overall food prices increased minimally compared to April, but at the same time, ‘core’ food products continue to show a decrease and mainly the prices of service-related segments (such as catering, buffet products, and home delivery) pulled the index positive,” Erste Bank analyst János Nagy said.

He added that the 0.9% monthly services price increase was still remarkable. In addition to wage dynamics, repricing with retrospective inflation was again the most significant factor here.

Nagy said the main inflation index reached the edge of the 2-4% tolerance band of the National Bank of Hungary (MNB) in May. In the short term, the biggest question is how much room there is for further price increases in the second half of the year after an 18-month recessionary period.

Erste expects inflation to be over 4% in the next few months. For the year as a whole, he predicts fluctuating annual inflation figures of 4-5% without a definite trend. According to Nagy, the disinflation process could start again next year and inflation return to the central bank’s target band then.

Disinflation Broken

“The disinflation process was already broken in April, and the annual inflation index could also be expected to rise in May. By the end of the year, inflation will be substantially higher than the May level, but it seems less likely that the inflation index will rise above 5% by the end of the year,” MBH Bank’s senior analyst Márta Balog-Béki said.

According to her, the increase in the price of services will slow in the coming months, as it is less and less justifiable to use last year’s inflation as the basis for pricing decisions. Balog-Béki believes the stable and sustainable achievement of the central bank’s inflation target of 3% can be expected in 2025 at the earliest, but even then, the average annual inflation may exceed 3%.

Naturally enough, the MNB also monitors inflation processes closely. MNB deputy governor Barnabás Virág told a recent central bank conference in Budapest, “We cannot sit back because of inflation in the service sector and high wage dynamics; inflation may rise in the coming months, so this justifies a patient and cautious monetary policy even more.”

Despite the rising trend, Minister for National Economy Márton Nagy claimed in a press release that, due to the government’s targeted measures, such as mandatory sales and online price monitoring, inflation has collapsed and remained at a low level due to price competition generated by government actions.

Among the May data, it is noteworthy that, within the food product group, the price of eggs decreased by 22%, that of flour by 19.6%, dairy products by 11.6%, and dry pasta by 10.6% compared to the same period of last year. Nagy also noted that household energy prices fell by 2.4% on a year-on-year basis, within which the cost of piped gas dropped by 4.7% and electricity prices by 2.9%.

The drop in basic foodstuff and household energy is a major help for Hungarian families, the press release of the Ministry for National Economy says.

Battling industry

Hungarian industry continued its battles in April. While the volume of industrial production grew in April by 6.4% year-on-year, based on working-day adjusted data, production declined by 2.4%. Compared to the crude data, the significant difference is due to the fact that there were three more working days in April 2024 than in April 2023, KSH noted. However, production also declined on a monthly basis: according to seasonally and working-day adjusted data, industrial output was 0.7% lower than in March 2024. However, it is important to note that industrial production in Germany, considered Hungary’s most important trade partner, also shrank in April: production was 3.9% lower than last year.

This article was first published in the Budapest Business Journal print issue of June 14, 2024.

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