Hungary's inflation rose but came in lower than expected in May

The main reason for the lower-than-expected inflation rate is that prices did not increase on a monthly basis in May. The price of food, clothing and consumer durables were flat, special gas pricing made household energy cheaper, a fuel prices also fell. However, this was offset by services remaining in repricing mode, where we still see substantial increases.

The result of all these movements was a 0.1% month-on-month fall in prices, which could be interpreted as the individual effects offsetting the slow deceleration in services inflation.

However, the year-on-year inflation rate still rose, as there were larger price falls last May (for example in the fuel market), so the base effect affected the price index negatively. However, the fact that we are still seeing a better-than-expected figure shows that overall price developments are favourable.

But this is only one side of the coin. If we look at the core inflation indicator, which filters out one-off effects, we see strong pressure on a short basis. Price trends over the past three months would suggest an annual inflation rate of close to 7%:

Overall, this mixed picture can be broadly summarised as follows: we do not see any meaningful inflationary pressures in goods, but the retrospective price adjustment in services based on last year's high inflation is still pushing up price levels.

In the coming months, this picture will improve as the service repricing at the beginning of the year winds down. However, inflation in the recession-stricken economy disappeared so much in the second half of last year that the inflation indicator will show a sideways, slightly upward trend in the months ahead due to base effects.

Cover photo: Getty Images