Hungarian inflation hits record high as central bank raises interest rates

Hungarian inflation in July soared to the fastest point in a generation as the country’s central bank raised interest rates to the highest of any member of the European Union.

Compared to the previous year, Hungary saw its consumer prices increase by 13.7%, upsetting previous economic forecasts, according to Bloomberg. In addition, the country’s underlying inflation, which measures long-term inflation without volatile commodities, increased by 16.7%.

The forint, Hungary’s main currency, was the third worst performing country with emerging markets down more than 8% against the euro. In July, the central bank tried to ease economic pressures by raising interest rates by 200 basis points, bringing the annual total to more than 800 basis points.

“The central bank has no choice but to continue its rate hike cycle with decisive steps,” Budapest-based Hungarian economist Mariann Trippon told Bloomberg. Trippon, along with other Hungarian economic strategists, predicts that the interest rate will likely reach 13% by the end of 2022.

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The receiver station of the Druzhba oil pipeline between Hungary and Russia is seen at the Danube refinery of the Hungarian MOL group in Szazhalombatta, Hungary, May 18, 2022. (Reuters/Reuters)

“Over the next few months, the bank could raise rates by up to 100 basis points each month…in order to achieve positive real interest rates as soon as possible,” Peter Virovacz told Reuters. Senior Economic Analyst in Hungary. This) could sustainably strengthen the forint. We do not rule out that the central bank will only stop with rates around 14% (or 15%).”

For the year as a whole, staple food prices for items like bread and cheese have risen by more than 50%. The weight of Hungarian inflation should shift towards sources of energy.

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Hungarian Prime Minister by Victor Orban The government plans to slowly remove the fuel price cap to reduce spending in the face of potential spikes in energy costs.

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Laura T. Thrasher