Economy 12 April 2023, 11:08am

Hungary c.bank measures of underlying inflation don't look good - Where's the drop they're talking about?

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Practically only Hungary's headline inflation indicator declined in March, while core inflation and the underlying indicators that the central bank (MNB) monitors most closely continued to rise, according to an MNB analysis published on Wednesday. This increasingly highlights the negative side of the recent data, as the structure of Hungarian price increases suggests that we can call this a trend reversal only from a statistical point of view at best.

Inflation fell to 25.2% in March from 25.4% in the previous month, the Central Statistical Office (KSH) said on Wednesday morning, marking the second consecutive month of lower inflation, but the rate of decline was below expectations, with analysts expecting an average of below 25%.

The central bank's measures of underlying inflation continue to show a forlorn picture of the structure of domestic inflation. The figures reveal that it was practically only the headline indicator that dropped last month, while all the other underlying measures show further uptick.

Here's the same chart as above but for a shorter period to give a closer look at the more immediate changes:

Inflation slowed down by 0.2 percentage point compared with the previous month. This slowdown was largely driven by fuel prices (by -0.3 percentage point) and processed food prices (by -0.2 percentage point). By contrast, year-on-year core inflation rose by 0.5 percentage points from the previous month. The rise in core inflation was primarily driven by a pick-up in the services price inflation.

Industrial goods prices rose by 1.3% from the previous month. As a result, annual inflation of this product group rose to 19.4%. However, durables prices fell by -0.3% on a monthly basis, which was primarily a result of the fall in new and second-hand car prices.

Services prices rose by 2.3% on the previous month, which was caused by a rise in telecommunications services prices, seen in January. The annual price index of services rose to 18.5%.

According to KSH data, food price inflation has been slowing for the third month, as a result, it stood at 42.6%. Within the product group, the annual price indices of both processed and unprocessed food decreased slightly. The slowdown in food prices was primarily explained by the changes in the prices of dairy products, bread and bakery products, as well as margarine. Compared to February, unprocessed food prices rose by 2.5% and processed food prices increased by 0.3%. In the group of alcohol and tobacco products, prices rose by 0.9% relative to February.

The indicators, measuring households’ inflation expectations, showed unusually high volatility. The indicators in March fell further. The decline in corporate expectations for both retail sales and services pricescontinued.