Hungary's Temporary Inflation Uptick: Food Price Caps and Fuel Costs in Focus

Temporary slowdown in Hungarian disinflation

The expiry of food price caps and soaring fuel prices gave a temporary boost to Hungary's monthly inflation in August. Developments in core inflation look more encouraging, especially in services.

 

Disinflation is getting more widespread with some exceptions

As expected, the disinflationary process in Hungary continued in August, albeit at a slightly slower pace. Headline inflation decreased to 16.4% year-on-year. Base effects helped to cover the pick-up in month-on-month inflation, which came in at an above-consensus 0.7%. The last time monthly price pressures were this high was in April earlier this year. It is also important to note that August typically shows a slightly negative monthly repricing based on the historical average. Against this backdrop, we can say that the monthly price momentum was strong in August 2023 – but the vast majority of this momentum stems from one-off elements.

 

Main drivers of the change in headline CPI (%)

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The details

• In August 2023, the government abolished food price caps, which set the prices of some selected basic foodstuffs at the level of October 2021. It is therefore not surprising that food prices rose again on a monthly basis. However, given the general price pressure on food last year, the base effect still helped to reduce the YoY increase to below 20%.
• Another major factor behind the strong monthly repricing is fuel. The strengthening of the dollar resulted in a much higher USD/HUF level (roughly 7% versus mid-July), while oil prices edged up as well. As a result, fuel prices jumped by 8.2% MoM in August, putting the brakes on the general disinflation process in the yearly-based headline print.
• The global disinflationary trend helped with a minor retreat in the average prices of durable goods (-0.1% MoM), counterbalancing the volatile movements in the forint. Falling consumption and fierce competition are also key players here as the real disposable income of households continues to shrink.
• Last but not least, the real downside surprise was the yearly-based inflation in services, which slowed to 13.2% and broke a 13-month uptrend. It seems that the collapse in domestic demand has started to impact the repricing power of service providers. Even if we exclude the effects of the one-off price cut in telephone and internet services in August, the monthly repricing in services is lower than usual.

 

The composition of headline inflation (ppt)

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