Retail sales in Hungary fell 13.6% year on year (chart) in April and by 12.6% when adjusted for calendar effects, the Central Statistics Office (KSH) announced on June 6. The figure was below analysts’ projections.

Retail sales shrank for the fifth month in a row and the contraction remains marked in all main categories, as high inflation is eating into households' disposable income. With headline CPI and core inflation both stuck well above 20%, real wages are shrinking fast.

On a positive note, the rate of decline in the retail sector may moderate in the coming months as base effects fade. Last year’s pre-election transfers boosted retail sales in all major categories, and sales of price-capped fuel also soared.

A detailed breakdown of the data shows adjusted retail sales fell in all types of shops, except drugstores and pharmacies, where they rose 5.4%.

In absolute terms, retail sales came to HUF1.48 trillion (€4bn). Food sales accounted for 49% of the total, non-food sales for 35% and sales at petrol stations for 16%.

 

In the first four months, retail sales dropped an adjusted and unadjusted 10.4% y/y. Adjusted food sales fell 8.2%, non-food sales dropped 8.1% and vehicle fuel sales were down 20.2%.

 Analysts also note the impact of Hungarians’ foreign spending. Some FMCG and discretionary items cost 10-20% less in Croatia, Slovakia or Romania, and the stronger forint has also made foreign shopping trips for many Hungarian consumers living near the borders an attractive alternative. This is just the opposite of what happened in the base period, when the weaker currency helped Hungarian retailers and fuel prices were capped.  

Hungary’s 27% VAT is the highest in Europe and retail prices distorted by government mandated price caps, but losses incurred on these items are generally spread to other products. Many Hungarians venture out to Austria for bargains as well.

Hungarian retailers will face more pain in 2024 as the government has raised the revenue-based windfall tax on revenue over HUF500bn to 4.5% from 4.1% from 2024. Government levies pushed their operation to the red in 2022 and losses will widen in 2023 and 2024.