Disappointing CPI data for April: cap on retail margins did not work quite as suggested previously

HUNGARY - In Brief 09 May 2025 by Istvan Racz

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The headline rate was 0.2% mom, 4.2% yoy, the latter down from 4.7% yoy in March, core inflation was 0.1% mom, 5% yoy, also down from 5.7% yoy in the previous month:So, it looks like the spike seen in the first two months of this year has been overcome, both headline and core fell neatly, and the headline rate is now close to the upper end of the MNB target range. So, what is the problem?Well, it is that food prices fell by only 1.3% mom on average. Previously, the Economy Ministry claimed that the average price of the products affected by the administrative 10% cap on the retail margins of selected food items fell by 18.6% after the introduction of this measure on March 17. The minister himself said that most of this impact would have to be included in the April CPI data, as KSH close down the collection of data on the 20th of each month, and so it would have been too late for the impact to be captured in March already. But if this is so, the said size of price decreases should have prompted a 3.7% mom drop by food prices in itself, given that the share of the affected products within total food sales is exactly 20%. So, either the real impact of the cap was much smaller than officially indicated, or substantial compensatory price increases were carried out outside the affected circle, or a bigger part of the impact was captured already in March, when a complete stagnation of food prices was reported by KSH, or some combination of these three factors, which is most likely.The most painful part of the story is that the impact of the cap is a genuine one-off, so that margins and retail prices have now been corrected down and that is it, no further impact can be expected...