Eszter Gárgyán, of Citibank, Budapest, is extensively quoted in Portfolio Hungary, and this appreciation of the situation seems reasonable.
“The monthly drop in retail sales was less than our expectations and the market forecast. This was due to increasing clothing and book sales, which we believe are both seasonal trends and are unlikely to be sustained in 4Q. Increased clothing sales volume was probably driven by summer sales, which is likely to be offset by lower sales in September, when clothing prices increased, in our view."
“Book sales will probably continue to increase in September in line with normal seasonal patterns, but this is also likely to fade away for the rest of the year."
“Declining car sales (which are also evident from lower car loan flows) are an indicator of households' pessimistic outlook on their own financial situations, which have contributed to a further decline in consumer confidence in September."
“We expect household consumption to remain negative in 4Q. Rising food prices are likely to contribute to deteriorating consumer sentiment, as households are usually more sensitive to changes in food prices."
“The upside surprise in retail sales data is unlikely to change the monetary policy outlook. We expect the National Bank of Hungary (NBH) to alter its CPI projection in its November forecast, based on a faster rise in food and fuel prices in 4Q07 and 1Q08 compared with the August inflation report."
“However, we expect inflation to decline sharply by 2Q09. We believe medium-term disinflation is likely to be supported by weak domestic demand, which was confirmed by the recent months' data. Inflation expectations and wage demand remain the key risks to the medium-term inflation outlook, in our view."