HU: Inflation slowed faster in March

The CSO published the March CPI inflation figures this morning. Compared to February, consumer prices remained unchanged, taking the 12-month headline rate to 4.7%, down from 5.6% in February. The actual figure was lower than our estimate and the market consensus of 5% y/y. Core inflation also mitigated, to 5.7% y/y from 6.2% y/y. Cap on margins of certain food products as of March 17 coupled with favorable base effects in the field of services played a key role in the inflation slowdown.

Food prices were flat on a monthly level, with mixed m/m movements behind the stagnation. Among foods, edible oil cost 4.1% more, chocolate and cocoa 3.4%, buffet products 2.1%, pasta products 1.7%, coffee 1.3%, and poultry meat 1.2% more for consumers. Meanwhile, the price of margarine diminished by 9.9%, milk and milk products by 5.4%, butter by 5.1%, flour by 2%, sugar by 1.9%, and pork by 1.5%, according to the CSO.

Mixed price movements in this category are expected to continue in the coming months, as retailers may try to compensate for their losses by increasing prices of other, non-regulated products. The measure will remain in effect until the end of May; however, given earlier practices, a prolongation would not be surprising and may keep inflation of some base products relatively subdued for a longer period.

The slowdown of inflation in March was supported by a 4.1% m/m decline in fuel prices and a 0.2% m/m decline in household energy prices. Additionally, the m/m increase in services prices mitigated to 0.3% following relevant repricing in January and February. However, monthly inflation of some types of personal services, mainly driven by inflationary expectations, remained strong (prices of personal care services rose 1.4% m/m, repair and maintenance of vehicles by 0.9%, and repair and maintenance of dwellings by 0.7% m/m).

The short-term inflation outlook remains uncertain and will mainly be dominated by the effects of government measures. Following foods, banking and telecom services prices seem to be subject to price regulations, which may impact the inflation of market services. Nevertheless, given that the margin cap on foods will be fully effective in April, this suggests a further slowdown of the headline rate for the coming month.