Hungary's consumer price growth slowed more than expected in March to 4.7% (chart) from 5.6% from the previous month, marking the first decline after five consecutive months of acceleration, according to data released by the Central Statistical Office. On a monthly basis, CPI was unchanged. As core inflation remains elevated and economic uncertainties from the trade war mount, analysts expect the central bank to keep rates on hold later this month.

Economists had forecast the headline data to ease to 5%, but falling fuel prices (-4.1% month on month) and the introduction of the government’s retail margin cap in mid-March contributed to a stronger disinflationary effect.

The government introduced a cap on profit margins at 10% for the largest retailers. The measure affected 1,000 products in some 30 product categories. In a statement issued after the CPI reading, the ministry said the intervention has led to an 18.8% decline of products affected on average. The KSH data showed the rise in food prices was unchanged on a monthly basis and grew 7% year on year. The impact of the measure could be seen in the coming months. 

Service prices increased by 7.5% y/y and 0.3% m/m, household energy prices fell 2.7% y/y and 0.3 m/m and consumer durable prices went up 2.1% y/y and 0.4% m/m.

Core inflation also moderated, slowing to 5.7% from 6.2% in February. Despite this improvement, analysts warned that stickier components of inflation remain a concern.

Erste Bank described the reading as a "pleasant surprise", but said that core inflation at 5.7% still warrants for caution for monetary easing.

ING Bank said the full impact of government-mandated retail margin caps on food prices will likely be more visible in April data.

"The key question is whether temporary price caps will genuinely anchor inflation expectations," ING warned, adding that the memory of past price controls and their distortive effects on other product categories may linger among consumers.

The government set price caps on a dozen or so food staples before the 2022 election. Instead of driving inflation lower, it contributed to an overall increase in food prices. 

MBH Bank echoed that while the data is encouraging, risks still remain. The extension of government interventions – particularly in food and potentially services – could keep headline inflation subdued in the coming months, but at the cost of long-term pricing transparency.

MBH expects that inflation in April will dip below 4%, helped by base effects and retail price controls. However, analysts remain concerned that pressures could resurface later in the year, particularly if regulatory measures are phased out or the forint weakens further.

Despite the encouraging inflation print, analysts say the central bank unlikely to react with a rate cut in the near term.

"The underlying inflation trend remains too strong to justify any hasty monetary easing," ING Bank commented, warning that any premature policy loosening could backfire through renewed currency depreciation and imported inflation.

The MNB recently revised its 2025 inflation forecast upward, acknowledging that its previous projections had been overly optimistic. In a statement issued on Tuesday afternoon after a non-rate setting meeting, policymakers said the "prolonged changes in tariff regimes" could reduce Hungary's GDP by 0.5-0.6pp and pose upside inflation risks. 

Policymakers are expected to hold the key rate steady at this month’s rate-setting meeting, as risks from global economic uncertainty and forint volatility continue to weigh on the outlook. Officials are also likely to maintain a cautious tone in communications, pending further confirmation of a sustained disinflationary trend.

The Economy Ministry projects the April CPI could fall to around 4%, while food price inflation is expected to drop under 5%.