Despite real wages turning positive in October, retail sales continued to fall in Hungary in October. The official data showed a 6.5% (chart) annual decline according to both raw and adjusted data, which is the second-worst in Europe, behind Slovenia, and was slightly below forecasts. According to seasonally and calendar-adjusted data, retail sales fell by 0.3% month-on-month.

A detailed breakdown of the data shows that adjusted retail sales fell in all types of shops, except pharmacies and drugstores.

Adjusted food sales fell 1.9%, non-food sales dropped 5.1% and vehicle fuel sales were 21.1% lower. On a monthly basis, food sales edged 0.3% despite the sharp fall in food prices.

In absolute terms, retail sales came to HUF1.59 trillion (€4.2bn) in October. Food sales accounted for 47% of the total, non-food sales for 35% and sales at petrol stations for 18%.

After double-digit growth in H1 2022, retail sales slowed from the summer months as the impact of the 2022 pre-election transfers and bonus payments faded. Sales have been contracting since December 2022 for just about a year. The energy crisis, Europe’s highest inflation and the partial lifting of energy subsidies have eroded Hungarian households' spending power. Retail sales have now fallen to 2021 levels.

 

The fact that real wages have turned positive after a year does not change the behaviour and overall financial situation of households, ING Bank analyst Peter Virovacz commented. 

A recovery is not yet on the horizon, even as disinflation gathered momentum and food prices have been falling steeply after food inflation peaked at 40% earlier this year.

The effect of the central bank's easing is not yet reflected in the cost of personal loans, so borrowing cannot stimulate retail sales either. Data shows however that a rising number of low-income people are taking out loans to cover the cost of food staples.

Consumer sentiment remains at a ten-year low and this needs to change before retail sales could rise again, analysts said.

In the first ten months, retail sales dropped an adjusted and unadjusted 9.0% year-on-year. Adjusted food sales fell 5.7%, non-food sales dropped 7.1% and vehicle fuel sales were down 21.1%.

Analysts said the increase in real wages will continue to lend support to the sector, but this is unlikely to turn into dynamic growth as households will primarily reduce their debts and replenish their reserves before consumption starts to grow again.