Retail sales fell in all major categories in June. In absolute terms, turnover reached HUF1.56 trillion (€4.0bn), up 9.2% y/y below the 20%+ inflation rate during the period. As in the previous month, food sales accounted for 49% of the total, non-food sales for 35% and sales at petrol stations for 16%.

On a positive note, the decline of food sales continued to slow in June as food inflation decelerated. The government launched an online price monitoring system in July and the largest retailers must also offer mandatory discounts of up to 15% from August, which has already led to lower retail prices. 

Food sales fell 4.8% y/y in June, down from 7.3% in the previous month and from 10.3% in March. Base data however is distorted by a spending spree on the back of pre-election transfers.

After roughly 10% annual contraction, non-food sales were down just 4.3% y/y in June, a positive trend that could possibly signal a turnaround. Fuel sales were 24.2% y/y lower on an annual basis, due to the price caps in the base period. Excluding these impacts, fuel sales were little changed compared to 2021 data.

The volume of mail order and internet retailing, accounting for 7.7% of all retail sales and involving a wide range of goods, fell by 4.5%.

The high base and double-digit decline in real wages have set back consumer sentiment. Households have reduced spending on basic items as food inflation peaked at over 40% in the winter, but the trend is now changing. On a monthly basis, food sales grew for the third straight month, and the performance of non-food sales on a monthly basis was exceptionally robust.

The monthly 2.5% growth was the highest since February 2022. Demand for furniture and consumer electronic items was strong.

A trend-like turnaround in retail sales could begin to take hold as inflation moderates and household purchasing power is expected to rise again from September, ING Bank analyst Peter Virovacz said. However, this is unlikely to save the year and retail sales will likely negatively contribute to GDP in 2023, he added.

Erste Bank in a note highlighted that double-digit wage growth coupled with subdued energy prices and declining inflation could lend support to consumer spending in the second half. The June data confirms the bank’s forecast that the economy stagnated in Q2, after three consecutive quarterly declines.