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Apr 08, 2016

Lower consumer prices in the month of March

In March 2016, inflation fell by -0.2 percent year-on-year in Hungary. This was mainly due to low oil prices and disinflationary effect from Europe, but it was also attributable to the reduction of VAT on pork.

In comparison to the February figure of 0.3 percent, this signals a substantial drop, especially thanks to the favourable price changes of food and fuels. Lower food prices were partly the consequence of a lower VAT on pork, but the global oversupply of meat and dairy products is also believed to have been a major price determinant. The fall of fuel prices reduced the final index by 1.2 percentage points. However, as lower transportation costs usually translate into the prices of other products and services, the actual impact of lower fuel prices is thought to be larger than that.

Recent data show that a long-term benign inflationary environment prevails in Hungary. While consumer prices rose by 5 percent in 2010, this indicator – thanks to multiple rounds of public utility price cuts – was around 1.7 percent in 2013 and 0 percent in 2014-2015. Accordingly, the purchasing power of the forint could be preserved. Subdued prices lead to higher wages and pension benefits in real terms, which in turn result in more disposable income at households that fuels consumption and economic growth.