Inflation to accelerate in Hungary in the future

Hungary’s central bank has said it expects inflation to fall “moderately” in the coming months, then at a faster pace in the second half of the year.

Inflation peaked in January, with both external and internal factors pointing to disinflation, central bank director András Balatoni said on Thursday, presenting the National Bank of Hungary’s latest quarterly Inflation Report.

Disinflation is expected to accelerate in the second half of the year and return to the central bank tolerance band in 2024, he said.

Analysing the inflation processes of the first two months, Balatoni said the February data (25.4 percent year/year) were in line with expectations. The increase in food prices — and especially processed food prices — remains high both historically and by international comparison, but the pace of price increases fell for the second month in a row in February.

The central bank already published the key figures of the Report on Tuesday: it forecast annual average inflation between 15.0 percent and 19.5 percent in 2023, unchanged from the December projection. For 2024, the NBH raised its inflation forecast to 3.0-5.0 percent from its December projection of 2.3-4.5 percent.

Among the external factors of disinflation, Balatoni listed falling energy and commodity prices as well as transportation costs.

Declining household consumption has a “disciplining” effect on pricing behaviour, which will help accelerate the disinflation process in the second half of the year, according to the central bank’s analysis.

Companies’ inflation expectations have declined significantly in all sectors, especially in retail trade, Balatoni said.

On the outlook for the real economy, he said the Hungarian economy continued to contract in the first quarter — both on a quarterly and an annual basis, but the economy could pick up from the middle of the year thanks to positive fundamentals and the high level of employment. The NBH cut its economic growth forecast to between 0 percent and 1.5 percent in 2023 from its earlier projection of 0.5-1.5 percent. For 2024 and 2025, the forecast remains unchanged at 3.5-4.5 percent and 3.0-4.0 percent, respectively.