ECO ECONOMY-Hungarian inflation remains stuck at 14-year high

January 14 (Reuters)Hungarian inflation remained stuck at a 14-year high of 7.4% year-on-year in December, data showed on Friday, defying expectations of a slowdown and underscoring lingering price pressures in central Europe, with rising interest rates.

Policymakers in Central Europe raised interest rates sharply in the last quarter of 2021 to tackle inflation that has reached multi-year or even multi-decade highs.

The region faces external price pressures from global supply issues and other factors, but also has tight domestic labor markets that are fueling wages and consumer demand.

In Romania, data from the statistics office on Friday showed inflation accelerating to over 8% in December. Inflation in Slovakia, which is part of the eurozone, also rose to 5.8% year-on-year; average inflation in 2021 reached 3.2%, the highest in nine years.

Hungarian inflation remained unchanged in December.

Analysts, however, had expected a slight general easing as the government launches measures, such as a cap on fuel prices started in November, to ease price pressures.

December price data supports the view that the Hungarian central bank will continue on a rate-tightening path in 2022.

The bank has paused for now with the increase in its one-week deposit rate, used to combat short-term market volatility, as the forint has appreciated strongly so far in 2022, But policymakers continue to raise their base rate to a monthly rate- set-up meeting Jan. 25.

The tougher policy track contrasts with eurozone rate setters at the European Central Bank, who have often argued that price pressures will ease even if inflation hits new highs.

In Romania, the central bank said it expected inflation to rise gradually over the next few months despite energy price caps and subsidies.

Romania started the COVID-19 pandemic with the highest interest rates in Central Europe, but its benchmark rate – at 2.00% – is now the lowest in the region.

Czech interest rates are highest at 3.75%, and the Czech central bank said after price data on Wednesday it could not rule out inflation topping 10% early this year.

Last week’s data showed that Polish inflation exceeded 8% in December.

(Reporting by Jason Hovet in Prague, Gergely Szakacs in Budapest and Luiza Ilie in Bucharest; Editing by Emelia Sithole-Matarise)

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Laura T. Thrasher