CPI-inflation to remain unchanged in October, consumer demand is moderately cooling

HUNGARY - In Brief 07 Nov 2018 by Istvan Racz

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KSH is scheduled to come forward with its CPI-inflation data tomorrow. We expect the headline rate at 0.3% mom, 3.6% yoy, unchanged from September, as a result of the combination of a 1.4% mom rise by fuel prices and 0.2% mom non-fuel inflation. Our fuel-price forecast is the same number by which the wholesale prices of fuels actually rose in October, whereas the monthly rate of non-fuel inflation would be the same as in September, but one decimal point lower than in October 2017. Please, note that our forecast for the October headline rate is higher than the 3.3% yoy prediction given by the MNB in its September inflation report.Nominal net wages growth and CPI-inflation (yoy in %) Source: KSHOn a closely related item, KSH reported 5.4% yoy day-adjusted growth for the volume of retail sales in September, bringing the Q3 growth rate down to 5.8% yoy, from 6.7% yoy in Q2 and 7.2% yoy in Q1. This indicates the cooling of very strong consumer demand, as nominal wage growth has started to settle down, due to tighter fiscal policy after the April election and as rising inflation is eating up an increasing amount of nominal wage growth (see charts). Growth by real net wages and retail sales (yoy in %) Source: KSHOn the basis of decelerating wage growth and cooling consumer demand, one could even conclude that non-fuel inflation could decrease in 2019. However, please note that nominal wage growth is still much faster than inflation, and also that the government is pumping air on the fire. A few days ago, a government minister spoke sympathetically about the current claim by trade unions to raise the statutory minimum wages by 13-15% in 2019. This might sound somewhat irrespon...