Temporary relief: inflation in Hungary eased in August

In August, Hungary saw a temporary easing in inflation, with the rate falling to 3.7% from 4.1% in July. However, this data does not account for the impact of the summer drought on prices, and analysts suggest that the effects on the Hungarian economy will only become evident in the autumn.

According to economists consulted by Portfolio, domestic inflation may have decreased to 3.7% in August, down from 4.1% the previous month. Analysts attribute this decline primarily to base effects. However, they expect inflation to gradually increase towards the end of the year, with many predicting it could exceed 5%.

“The inflation rollercoaster may have continued in the last month of the summer: after a significant rise in July, we are now seeing a greater moderation,” said Péter Virovácz, a senior analyst at ING Bank. He noted that several specific factors contributing to the July spike in inflation are unlikely to be present in the August data. For example, food prices rose in July due to the introduction of price caps and the end of compulsory shop sales, Világgazdaság reports.

Fuel prices also fell in the first twenty days of August, which likely played a significant role in curbing one-month inflation. Virovácz does not foresee another substantial rise in food prices like the one in July, suggesting that inflationary pressures from this sector may be lower.

Additionally, the global decline in consumer durable prices, along with the relative stability and slight strengthening of the forint, indicates that price changes in this category could have been slightly negative each month.

Gábor Regős, Chief Economist at Granit Fund Management, stated that while fuel prices have minimally reduced inflation compared to their positive contribution in the previous month, the main concern remains the rise in service prices. Although monthly repricing was more moderate than in July, it continues to be the most significant factor driving up the overall price level. Regős expects consumer prices to have increased by 0.2% on a monthly basis, with last year’s high base potentially causing the annual index to fall from 4.1% to 3.6%.

Some analysts believe that weak demand may already be restraining inflation in services. Zsolt Becsey, Chief Economist at MNB, noted that the significant price increases in services seen in the spring did not trigger a new wave of inflation over the summer. Regős pointed out that second-quarter GDP data showed that expanding demand for services played a large role in boosting consumption, with service sectors capitalising on this demand.

Analysts warn inflation could rise again

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Dániel Molnár, Senior Analyst at the Macronome Institute, noted that food prices may have stagnated in August but could rise slightly in the coming months due to weaker agricultural production and increased import demand. He forecasts that inflation may have returned to the central bank’s tolerance band at a rate of 3.6% in August, with a 0.2% increase in consumer prices on a monthly basis.

According to Világgazdaság, inflation is expected to remain within the tolerance band in September, accelerate temporarily from October due to base effects, and approach 5% by the end of the year. It is projected to start decreasing again from early next year, reaching the inflation target by the summer of 2025. Zsolt Becsey also emphasised that despite the spring price hikes in services, demand remains weak, limiting businesses’ ability to raise prices further.

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