bne IntelliNews – Hungarian inflation hit 24-year high in August
The price increase was widespread, with 96 of the 140 goods and services in KSH’s consumer basket posting double-digit growth and 35% increasing by more than 20%.
The pace of food price growth continued to increase slightly, up 30.9% year-on-year, despite the price freeze of half a dozen foodstuffs. The price of poultry rose by 40.4%, that of bread by 64.3% and that of dairy products by 54.7%. Hungarian consumers have already started to reduce their food purchases, according to the latest retail data.
Some analysts expect the government to roll back the price cap on half a dozen food staples, which includes pork, cooking oil and flour after it expires in mid-October, which could further boost inflation.
The data shows that durable consumer prices increased by 14.8% and that of services by 7.7%.
Prices for the category of goods that includes vehicle fuel rose 11.9%, with fuel prices rising 6.2%.
The government has capped pump prices at 480 HUF/litre (€1.2) for petrol and diesel since 15 November. Vehicles with foreign license plates were previously excluded from the measure, and from the end of July company vehicles registered in Hungary also became ineligible. .
The harmonized CPI, adjusted for better comparison with the other Member States of the European Union, was 18.6%.
In its monthly analysis, the MNB said the rise in headline inflation was mainly due to higher food prices, while core inflation climbed on processed food prices.
The MNB’s measure of core inflation excluding the effects of indirect taxes – an indicator of core inflation – rose to 18.9% in August from 16.6% the previous month. The central bank’s indicator for demand-sensitive inflation, which excludes processed foods from core inflation, rose to 14.2% from 12.6%.
The KSH said the impact of subsidy cuts unveiled by the government in July would show up for the first time in September data, putting additional upward pressure on inflation. The MNB estimates that this could reach up to 3pp.
At the end of August, the Hungarian National Bank raised the key rate by 100 basis points to 11.75%, the highest in Central Europe, to curb inflation.
The authorities pledged to continue to tighten monetary conditions as long as inflation continues to rise to contain high inflation expectations, and announced further measures to reduce excess liquidity in the market. The hawkish tone helped strengthen the forint, the region’s worst-performing currency due to Hungary’s heavy reliance on Russian energy imports and uncertainty over access to European Union funding.
Analysts expect consumer prices to rise further in the coming months as uncertainties about the price cap remain. ING Bank analyst Peter Virovacz predicts the government will phase out the fuel price freeze, in place since November 2021, which could push headline inflation to over 20% in October.
For the year, ING expects inflation to average 14% this year and 15% in 2023, well above the government’s target of 5.2% in the 2023 budget approved in the summer.
Magyar Bankholding raised its average inflation forecast for 2022 to 13.4% in 2022 and 11.9% in 2023 after the data release.