Retail sales, wages decelerate on tight fiscal policy and higher inflation

HUNGARY - In Brief 05 Jul 2019 by Istvan Racz

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Retail sales growth decelerated in May, to 4.7% yoy in real terms and on seasonally and day-adjusted basis, from 6.1% yoy in April and 5.8% yoy reported for Q1.The local press and various private sector speakers are quoting the markedly lower unadjusted and day-adjusted figures (3% yoy and 2.6% yoy, respectively in May), and are trying to explain a seemingly sharp slowdown by quoting possibly changing savings patterns of the household sector. But this may be misleading, as the unadjusted or only partially adjusted data does not take into account the usual springtime yoy incomparability that often appears due to the swings by the timing of the Easter holiday from one year to the other. Taking into account the latter, which the seasonally and day-adjusted data does, the slowdown appears moderate, but it is definitely there.In our view, all this can be very well explained by a similar deceleration of real wage growth, as can be seen on the following chart:As you can see, the match between real wages and retail sales growth is quite spectacular. It can be rightly said that both wages and sales are decelerating because of rising inflation, and it is true, but only a partial explanation. What is really happening is that nominal wage growth is also slowing down, and it has been doing so since April 2018, the time when the latest parliamentary election was held:So why is wage growth decelerating? In our view, it is because of fiscal policy, which became very substantially tighter than before immediately after the election and has remained that way ever since then. Please, note that in January-April this year, the nominal wages paid to full-time employees rose by 6.7% yoy in th...