HU: Slightly higher increase in May

Today the Central Statistical Office (KSH) published inflation data for May. Consumer prices rose by 0.2 percent on monthly basis, accelerating the annual inflation rate to 4.4 percent after 4.2 percent in April. The actual figure slightly exceeded our expectations and the consensus. Core inflation slowed down on an annual basis: it decreased to 4.8 percent from 5.0 percent in the fourth month.

Consumer prices increased by an average of 0.2 percent on monthly basis. Regarding the details, food prices increased in May, mainly due to seasonal products. Service prices decreased by an average of 0.1 percent in a month, which can be mainly explained by the administrative reduction of telecommunication services prices. At the same time, domestic holidays have become significantly more expensive by 3.8, and the inflation related to mainly small and micro businesses (repair, maintenance, cleaning, etc.), which has almost always been above the average since the beginning of the year, is still present. The prices of durable goods have stagnated. Turning to items outside core inflation circle, household energy prices increased by 0.8 percent, while fuel prices decreased by almost 2 percent in the fifth month.

In the following months, except July, the price index will inherit fundamentally unfavorable bases, so there is no prospect of a significant decrease until the end of autumn. On the one hand, it is also worth noting that the numbers starting with 4 are largely due to administrative measure: the later elimination of which, presumably next year, will put lagged price pressure on the system. To put in a different context, the price dynamics are especially exciting in parallel with the stagnating economy: whether the long-waited recovery occurs, this could create further room for price increases. On the other hand, the already observable loosening of the labor market (decline in employment, slowdown in wage dynamics) may reduce price pressure, primarily of services. Overall, we expect the average rate of inflation to be 4.7 percent in 2025.