Hungary's inflation accelerated to -0.6% y/y in March from -1.0% y/y in February and of -1.4% y/y in January. The main factor has been acceleration in food, alcohol and tobacco inflation; core inflation remained unchanged at 1.0% y/y. Base effects from financial services contributed to the increase, and prices of several other items also rose, other than energy.
Real sector indicators decelerated, but remained strong. Retail sales growth, at 6.2% y/y in February, moderated slightly from its January peak. Industrial production growth also decelerated, slowing to 5.8% y/y. These are still high levels and consistent with buoyant growth. Hungary retained its strong trade surplus, which has supported its current account surplus. Exports were up 7.4% y/y and imports rose 6.3%, both further indications of robust growth.
The National Bank of Hungary restarted its rate-cutting cycle last month with a 15bp reduction in the policy rate, to 1.95%. Recent statements have signaled that it will continue the cutting cycle.
"With headline and core inflation still well below the 2-4% target, we expect three more cuts of 15bp each, which would bring the base rate to 1.5% by the end of this quarter", said Barclays in a report on Wednesday.
