Hungary’s retail sector lost some momentum in March, with sales volumes falling 0.5% from the previous month despite the government-introduced profit margin cap in effect from the middle of the month, the Central Statistical Office (KSH) said on May 7. In annual terms, sales fell 0.4%, but rose 0.4% (chart) when adjusted for calendar effects.

The data confirm that the robust January figures were more of a one-off bounce than the start of a sustained turnaround. Despite a 1.0% quarterly rise in Q1 retail sales, analysts warn that the momentum appears to be faltering, with household consumption likely contributing less than expected to Q1 GDP, which contracted on a quarterly basis. 

In March, adjusted food sales increased by 1.2% year on year, non-food sales rose 5.9% and vehicle fuel sales inched 0.1% higher.

Food retail and fuel sales fell on a monthly basis. Non-food retail bucked the trend slightly, driven by used goods and apparel stores, though volatility remains high.

At current prices, total retail turnover reached HUF1.63 trillion (€4bn) in March, with food stores accounting for 49% of sales, non-food outlets 36% and petrol stations the remaining 15%.

Online and mail-order sales, accounting for 8.5% of sales, climbed by 5.0% on the year, continuing their steady post-pandemic expansion.

Adjusted retail volumes rose by 2.7% y/y in Q1, as food sales were up 3.0%, non-food categories rose 5.6%, and fuel sales increased 0.8%.

Analysts at ING revised their full-year retail growth forecast to 3-4%, down from 4–5%, citing weakening real wage dynamics and subdued consumer confidence. Households remain cautious, prioritising savings over spending, seen as the aftermath of the 2023 inflation shock.

With consumer sentiment still well below pre-Covid peaks and retail volumes only marginally above 2021 levels, any meaningful rebound may be delayed until late in the year. Unless wage growth surprises to the upside, the expected spring uptick in retail sales may prove short-lived, ING Bank added.

The National Economy Ministry blamed the slowdown in retail sales on the base effect, adding that the impact of Easter will be reflected in the April data, compared to last year when the holiday fell at the end of March.

The ministry also rejected criticism of the National Retail Trade Association (OKSZ), which argued that the cap on retailers' profit margins would not meaningfully stimulate demand. On the contrary, the measure would increase uncertainty and further delay investments in the sector, they added.

The ministry responded by saying that the full impact of the cap on markups will be seen in the April data, when retail sales could expand 5-6% based on online cash register data.

In related news, the government is expected to announce the extension of the profit margin cap to household goods on Thursday, May 8. National Economy Minister Marton Nagy said earlier this week that the cap on markups covering 30 product groups would apply exclusively to drugstore chains such as Müller, Rossmann, and DM, which account for 40% of the market.

He said the profit margin on these products has exceeded 30%, and the measure would lead to a 16-18% decline in prices on average. The list of goods includes essential everyday items such as toilet paper, paper tissues, toothpaste, tampons, deodorants, laundry detergents, dishwasher tablets, disposable razors, and even aluminium foil.