Consumer prices in Hungary rose 3.6% y/y (chart) in March, edging down from 3.7% in the previous month, the Central Statistics Office announced on April 11. Compared to February, prices rose 0.8%. Food and energy prices rose below the headline data rise, but service prices were just a tad below 10%.

Hungary’s inflation peaked at 25.7% in January 2023, but since then disinflation continued and the headline data fell below the 4% tolerance band of the Hungarian National Bank (MNB) in January. In March, it stood at a 19-month low.

Core inflation, which strips out volatile energy and food prices, decelerated by 0.7pp to 4.4% last month, but was up 0.8% on a monthly basis, the highest in 11 months.

The three-month average core inflation, which gives a better picture of inflationary developments, was 5.0%, far from the central bank’s medium-term inflation target of 3%.

In March, food prices edged up 0.7% y/y  (+0.1% m/m), household energy prices fell 3.1% (+2.4% m/m), albeit from a high base, while consumer durable prices fell 1.8%, (0.0% m/m).
Prices in the category of goods that includes vehicle fuel rose 3.0% as motor fuel prices increased 2.3%.

Price pressures remained strong in the service sector, as this component accounted for three-quarters of the annual increase in consumer prices and accounted for 0.5pp of the entire monthly repricing.

Services inflation will likely remain elevated in April on the back of higher repricing from tourism, financial, and telecom services providers.

Commenting on the data, ING Bank analyst Peter Virovacz said a two-round reflation process is likely, largely driven by base effects, with the first round likely starting in May and the second commencing in October

Overall, inflationary pressures in the Hungarian economy are generally persistent and achieving the sustainable 3% inflation target would require monthly inflation rates of around 0.2-0.3%, according to Virovacz. ING left its inflation forecast unchanged at 5.5-6.0% for December.

Following the data, the MNB said that tradables had contributed 0.3pp, food prices 0.2pp and market services 0.1pp to the decline in headline inflation, while fuel prices had lifted the index by 0.3pp and regulated products and services prices by 0.2pp.

 

 

The MNB attributed the sharp slowdown in inflation over the past 14 months to the combined effect of tight monetary policy, government measures to strengthen competition, subdued demand, base effects and a "significantly lower" external cost environment.

The fresh inflation data is neutral for monetary policy decision and the MNB will likely continue its current easing cycle at the current pace, Amundi brokerage analyst Peter Kiss said. The MNB slowed the pace of rate cuts to 75bp in March from 100bp in February, saying the increasing financial market risk aversion justified the decision, even in the face of strong disinflation.

Policymakers signalled that monetary policy would enter a new phase from April and said that risks surrounding global disinflation warrant a cautious approach.

Investors' perceptions of forint assets may be influenced more by data from developed markets and interest rate expectations of global central banks than by domestic monetary policy actions, according to Amundi.