K&H Analyst Commentary: Inflation Surprised

In April, annual inflation was 4.2 percent, and prices rose by 0.2 percent on a monthly basis.

“Both figures exceed our expectations, as we expected an annual rate of below 4 percent, and a decrease compared to March. Overall, the prices of services, durable consumer goods, household energy and long-distance travel pulled inflation up. The latter two items caused the real surprise in the latest data,”

said Dávid Németh, chief analyst at K&H.

Core inflation, calculated without volatile food and energy prices and official prices, slowed down similarly to the main indicator, reaching 5 percent. However, according to the expert, this is still a high level and indicates inflationary pressure.

“The development of food prices shows a mixed picture. Although they showed an increase of 5 percent on an annual basis, which is above the average, they decreased by 1.3 percent compared to March. The margin caps played an important role in this monthly decrease, but it is uncertain how long they will remain in force. Moreover, if purchase prices increase in the coming months, for example due to favorable weather, this could also fuel food inflation,” he added. In addition, the new margin cap to be introduced in mid-May, which applies to drugstores, will reduce the rate of inflation. The question is how much other stores will reduce the prices of the affected products. This measure is likely to reduce the overall inflation rate by 0.2-0.3 percentage points while it is in force.