Data on March and April signals deep Covid-19 impact, as expected

HUNGARY - In Brief 08 May 2020 by Istvan Racz

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The headline rate of CPI-inflation fell very sharply in April. The figures were -0.6% mom, 2.4% yoy, the latter down from 3.9% yoy in March. Instinctively, one could think that the big drop must have been due to the current general economic weakness, but the situation is more complicated than that. Inflation was in fact pulled down by fuel prices alone (-16.4% mom, -22.7% yoy), whereas non-fuel prices rose by 0.5% in April, keeping yoy non-fuel inflation unchanged at 4.4%. Food prices in fact proved to be very strong, up by 1.4% mom, 8.7% yoy. The latter in turn was driven up mainly by pork prices (+28.9% yoy), a consequence of a different health crisis (SADS/ASF). Core inflation also remained unchanged at 4.3% yoy, whereas the MNB's adjusted core inflation indicator fell slightly, to 3.8% yoy, from 3.9% yoy in March. A key contribution to the strength of core inflation must have been made by a 10.9% yoy rise by EURHUF in April, following one of 9.3% yoy in March.Going forward, the headline rate is likely to reach a trough at 2% yoy in May, before starting to move up again and probably reaching 3-3.5% yoy at end-2020. All that roller coaster movement is expected to be a result of fuel prices (which we see slowly and moderately recovering from the current level in the rest of the year), whereas non-fuel inflation should stay in the narrow range of 4.2-4.6% yoy until end-2020, kept relatively high by the weak forint and some supply bottlenecks, mainly in the food sector.Other than inflation, most areas look dead weak. Industrial output fell exactly 10% yoy on sda basis in March, about half of which was already hit by the full impact of Covid-19. Guest nights fell 65% yoy...