Inflation's downtrend ended in April, just as expected

HUNGARY - In Brief 10 May 2024 by Istvan Racz

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The headline rate of CPI-inflation was 0.7% mom, 3.7% yoy in April, the latter rising marginally, from 3.6% yoy in March. Core inflation still dropped, to 4.1% yoy in April from 4.4% yoy in the previous month. Non-fuel inflation also decreased, to 3.7% yoy from March's 4.1%. Consumer prices rose by an average 9.5% yoy in the services sector, thus representing the key problem that prevents further price stabilisation. Fuel prices rose by 6.6% yoy, positively contributing to inflation again, following a more favourable impact in the previous four months. Note: yoy changes in %; Sources: KSH, own estimates for non-fuel inflation The headline rate moved exactly as analysts expected in April. Analysts also believe that the low point of the inflation cycle was actually reached in March, and the April data represents the start of a moderately ascending trend, prospectively leading to a 5-6% headline rate in December. We also think so, expecting 5.5% end-year inflation, in terms of the headline rate, because the factors leading to lower inflation in the past one year or so are not there any more. By the way, please, note that the monthly rate of headline inflation reached 0.7-0.8% in each of the last four months, and that was not exactly in line with any further decline of the annual rate from where it is currently. Please, also take note of the mainstream analyst view that service sector inflation is driven by high wage growth (14% yoy in February for average full-time employees in all sectors), which has a particularly significant impact in a typically labor-intensive part of the economy. Finally, please, be warned that the yoy headline rate is likely to rise above 4% in May...