Hungarian inflation accelerates in almost every category

Hungary's headline inflation in July accelerated by almost 1 percentage point, showing a 3.8% year-on-year average price increase.

Inflation almost doubled since the 2.2% nadir in May 2020. Based on market expectations, a strong acceleration was on the cards.

But this was stronger than anyone’s expectation.

• Fuel prices rose by 8.1% MoM, in line with the global oil price move. With this monthly increase, we almost reached the price levels of last summer. Fuel is only 4.2% cheaper than a year ago. When it comes to the impact on the acceleration in headline CPI, fuel price change explains more than 0.6ppt;
• The other product group which pushed inflation higher in July was durables, causing a major upside surprise. The 0.3% MoM inflation was the fifth positive price change in a row. When it comes to the year-on-year reading, the 2.7% inflation is the highest since March 2010. The main drivers were jewellery (+24.5% due to more expensive raw materials) and new passenger cars (+12.1% due to supply constraints);
• Another inflationary surprise came from services. The 3.4% YoY inflation reflects the decision-making process and/or the statistical uncertainty. On the former, in almost every service category (household, personal care and health, transport, cultural, entertainment and recreational services) providers raised the prices significantly. On the other hand, in the past months, the statistical office was unable to gather prices normally and used assumptions in prices;
• Regarding other factors, clothing also supported accelerating inflation, bucking the usual seasonality. Inflation in food didn’t show acceleration, albeit it remains strong at 7.8% YoY. The main driver was unprocessed food: meat, fish, fruits. The latter product group showed a 45% YoY price increase.

As both core and non-core factor contributed to the strong acceleration in the headline CPI reading, it hardly comes as a surprise that core inflation came in much stronger at 4.5% YoY. The impact of tax changes is 0.4ppt due to the next round of excise duty hike in tobacco products. Tax adjusted core inflation was 4.1% YoY in July 2020.