HU: CPI slowed lesser than expected in April

Consumer prices rose 0.2% m/m in April, taking the 12-month headline rate to 4.2%, down from 4.7% published for March. Core inflation also slowed, to 5% y/y. As expected, lower food prices stemming from the governments administrative measures and declining fuel prices primarily drove inflation in April. However, the pace of inflation decline was much slower than expected, indicating that, apart from artificial price-reducing measures, underlying price pressure remained strong in the economy.

Food prices dropped by 1.3% m/m, less than our estimation of 1.8% m/m. Prices of many food products (margarine, milk products, flour, butter, milk, edible oil, other meat preparations, cheese, poultry meat, sugar, pork) dropped significantly on a monthly level. However, this was partly offset by increases in prices of other food products, such as chocolate and cocoa, buffet products, non-alcoholic beverages, rice, pasta products, rolls, and bread. Additionally, there was a significant monthly increase in the prices of alcoholic beverages and tobacco (1.3% m/m). A negative surprise came from household energy prices, as the CSO reported an 8.3% m/m increase in gas prices. Inflation of services remained strong as well, with prices in this category rising by 0.8% m/m. Fuel prices dropped by 1.4% m/m.

Todays inflation figures can be seen as rather mixed. The cap on margins of different food products helped disinflation; however, the price-reducing impacts of these measures were not as strong as expected. Meanwhile, the actual figures also indicate that underlying price pressure remained strong in the economy. Caution seems warranted, as inflationary expectations appear to have remained high. Short-term developments largely depend on how long various government price control measures remain in effect. This week, the government announced price control measures for a range of non-food household products at specialized shops, including laundry detergent, washing-up liquid, paper tissues, and shower gel. These measures are planned to remain in place from mid-May to end-September.

All in all, uncertainties remain significant even in the short term. Overall, we now see that the likelihood of achieving the government's 4.5% forecast for this year has increased as a result of the above measures. However, given that a wide range of price control measures are likely to lead to suppressed inflation, this implies a higher inflation rate in the medium term. There is an increasing likelihood that inflation will remain above the tolerance range even in 2026.