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Despite Falling Inflation, Consumer Confidence Slowly Growing

Hungary Today 2024.01.09.

It will be worth watching the coming months for retailers, as December will see higher sales at the end of the year, while January will be important for the growth trajectory, experts say. They believe that real wages could continue to rise, which could slowly but surely support a recovery in consumption. For now, Hungarians are paying off loans and building up reserves, Világgazdaság reports.

In November, the volume of retail sales fell by 5.4 percent year-on-year in both raw and calendar-adjusted data, and by 0.8 percent year-on-year in November. However, no major change in the structure of retail trade is apparent, expert analysis shows.

Péter Virovácz, senior analyst at ING Bank, pointed out that there are already encouraging signs for food, but there is hardly any sign of explosive growth or a drastic upturn in food consumption. As he explained, the sales of other stores have shown a substantial upturn, but this could well be temporary, and only the Black Friday sales before Christmas have fueled the numbers, as the spike in two segments could suggest:

  • furniture and specialty stores, which have been suffering spectacularly, saw their sales jump in November, up 4.5 percent month-on-month
  • textiles, clothing, and footwear grew by 9.2 percent.

However, the expert warned:

Total non-food retail sales volumes are still below the 2021 performance level, so the direction of change is positive, but we are talking about a huge lag compared to previous data.”

Gábor Regős, chief economist at Makronóm, was also cautiously optimistic. He noted that the recovery in retail sales is also being helped by the fall in lending rates, however, he added, this is a similarly slow process, as it takes time for the lower base rate to be reflected in market lending rates, and households are feeling the effects.

The month-on-month increase may have been mainly due to the fact that prices have not risen much further and inflation is on the decline,”

said Regős, also mentioning another specific component besides food: fuel prices.

He recalled that at this time last year, price caps were still in place in this field, which had a strong impact on consumption. “In the coming months, the price cap on fuel will be taken out of base, so this can do much to improve the annualized volume index, which we expect to return to positive territory by February at the latest, or perhaps even earlier,” the economist continued.

He backed up his argument by saying that

the early increase in the minimum wage and the guaranteed minimum wage, and a return to positive real wage growth in general, could help, and that the cautionary motive could be eased in parallel.

At the moment, households are mainly reducing their debts and building up reserves, added Péter Virovácz, who explained that consumption could also start to grow, but for this to be a meaningful and lasting process, consumer confidence must first be restored, which is a longer process.

For all these reasons, experts believe that the effects of rising purchasing power in the real economy are likely to see a slow, gradual reflection in the 2024 retail sales data.

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Via Világgazdaság, Featured image: Pixabay

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