Economy 17 April 2024, 2:05pm

Here is the latest inflation ranking: Hungarian price increase remains among the highest

Portfolio

Inflation in Hungary remains in the top third of the European ranking. It has been the highest in the European Union for a long time, but it is already well below the highest readings in the block, according to a report by Eurostat, the statistical office of the EU, on Wednesday. For your pleasure, Portfolio has put together a regional comparison too, in various HICP product groups.

The euro area annual inflation rate was 2.4% in March 2024, down from 2.6% in February. A year earlier, the rate was 6.9%. European Union annual inflation was 2.6% in March 2024, down from 2.8% in February. A year earlier, the rate was 8.3%. Core inflation was 2.9% in the third month of the year, the same as the preliminary figure.

Inflation is falling rapidly in the euro area, with disinflation rates exceeding expectations in the first three months of the year. Price dynamics are not far from the inflation target (2%). Although the European Central Bank warns that there could still be some rebound in annual inflation, it has also said that it is prepared to lower interest rates. The ECB's interest rate hike between summer 2022 and autumn 2023 was also needed to bring inflation down from its peak above 10% in 2022.

Markets are expecting the first rate cut in June, when the benchmark deposit rate of 4% could be reduced by 25 basis points for the first time. The extent of further rate cuts is questionable, as the US Federal Reserve is expected to start cutting rates later, which could also tie the ECB's hands. From this perspective, inflation developments in the coming months will be crucial.

EU ranking

As for the ranking of Member States, Hungarian inflation was still among the highest in Europe in March. The annual inflation rate in Hungary was 3.6% in March, which was only good enough for sixth place in Europe. Hungarian inflation also turned out surprisingly well in the first three months of the year.

Compared with February, annual inflation fell in thirteen Member States, remained stable in four and rose in ten.

The highest annual rates were recorded in Romania (6.7%), Croatia (4.9%), Estonia and Austria (both 4.1%). The lowest annual rates were registered in Lithuania (0.4%), Finland (0.6%) and Denmark (0.8%).

Among the large economies, inflation was lowest in Italy, with an annual increase of 1.2%, 2.3% in Germany, 2.4% in France and 3.3% in Spain. In the vast majority of Member States, the annual indices fell from February to March, with only a few exceptions (e.g. Belgium, Spain) recording a small increase.

In March, the highest contribution to the annual euro area inflation rate came from services (+1.76 percentage points, pp), followed by food, alcohol & tobacco (+0.53 pp), non-energy industrial goods (+0.30 pp) and energy (-0.16 pp).

The difference between the annual indices is influenced by a number of factors. In countries where energy and food had a higher weight in the basket (Hungary was one of them), inflation tended to jump higher, as these two items were the main drivers of price increases on the continent.

In addition, the extent to which countries need energy imports was not the last consideration - Hungary was not doing well in this respect either. In addition, government efforts to influence prices also had an impact on inflation. The best example of the latter is Spain, where energy prices have been kept low by the government, causing the headline figure to remain well below the European average even at the peak of inflation, while core inflation has soared.

The difference between the annual indices is also explained by the different trajectories of inflation. We can recall that while annual inflation in the Baltic countries was already above 20%, inflation in Hungary was still around 10%, and when Hungarian inflation was around 25%, inflation in the Baltic countries was already in the single digits.

If we look at the month-on-month inflation in March, the 0.8% increase in Hungary is not exceptional, but there is a wide variation between Member States. In Greece, for example, monthly re-pricing was 1.8%, while in Lithuania and Finland, for example, prices fell.

Regional comparison

HICP - All items

You will find two types of charts below. The upper ones compare inflation in Hungary and in the EU between January 2022 and March 2024. The lower ones put Hungary on a regional map so to speak, but on a shorter period: between August 2022 (when consumer prices really started to take off in Hungary) and March 2024.

In the CEE region, Hungary had the highest HICP until November last year, when Czechia took over (8.0% vs. Hungary's 7.7%). In March, Hungary's annual inflation rate was "only" the sixth highest among the eight EU members states selected, with lower rates found only in Czechia (2.2%) and Slovenia (3.4%). Romania has been standing out this year, with its HICP at 7.3% in January, 7.1% in February and 6.7% in March.

Food, non-alcoholic beverages

The turnaround in the region came about in October, when Hungary's food inflation (8.0%) was no longer the highest in CEE, with Poland (9.2%), Slovakia (9.0%), and Croatia (8.9%) reporting higher figures. Hungary's yr/yr index in March came in at -2.1%, with an even better reading only in Czechia (-6.0%). Note, however, that food inflation in March 2023 was just down at a whopping 44.8% from the Dec22 peak of 47.9%. In comparison, Czechia's food inflation peaked at 28.2% in March last year.

Alcoholic beverages, tobacco

Hungary's HICP in this product group was still well over the EU average in January, but dipped under it in February and remained lower (4.1%) than the EU average (5.4%) in March too. The price increase here was still on its way up (19.6%) in March 2023 to the 20.4% peak reached in April.

In a regional perspective, Hungary lost its top ranking only in January this year, and the March print (+4.1%) was already the second lowest behind Austria's 3.4%.

Transport

Following a 5.1% drop in January and a humble 0.5% fall in February, transport prices in Hungary rose 2.3% in March, while the EU average was up only at 2.0% from 1.5% in Feb. Note that the index was extremely high a year ago (+25.4% in Jan, +22.6% in Feb and +20.1% in March 2023).

The yr/yr change in transport price was negative last month only in Poland (-0.8%) and Hungary's reading was not among the highest (e.g. 6.3% in Slovakia and 5.2% in Croatia).

Restaurants and hotels

Hungary's annual index in this category hit its lowest at 8.8% in February after peaking at 31.2% in April 2023. The EU average also fell to 5.6% from 5.7% in February.

Hungary was on the 1st spot in November and on the 3rd in December in the CEE ranking, but snatched the 'silver medal' in January (11.1%) and again 'bronze' in February (9.8%) and March too (8.8%, behind Croatia and Romania (both 11.4%).

Recreation and culture

The gap between the annual change in prices in this category Hungarian and EU widened to nearly 13 percentage points last April, but it narrowed to only 2.6pps by March this year.

In this category, Hungary has not 'given up' its leading position in CEE until February when it finished 1.4ppts lower than Romania which has been the runner-up since September. Hungary finished 2nd also last month, and the gap widened to 2.9ppts (HU: 5.6%, RO: 8.5%).

Services

Services inflation peaked at 19.1% in Hungary in April 2023, more than three times as high as the EU average (6.1%). Since then the Hungarian figure has been dropping until December when it picked up 1ppt to 12.2%. It was followed by a drop to 10.4%, while the EU reading fell only a tad to 4.5% from 4.6%. The March print shows no change from Feb in the EU (4.4%) and a further retreat in Hungary to 9.4% from 9.8% in Feb.