Higher oil prices to raise CPI over target, but National Bank of Hungary sees no spillover
Inflation could rise slightly over the 3 percent mid-term target in the coming months on the back of sharp increases in global oil prices, but the National Bank of Hungary (NBH) said it expects no spillover effects in a quarterly report published on Thursday.
“Inflation expectations are well-anchored; thus the increase in oil prices is not expected to induce second-round spillover effects,” the central bank’s Monetary Council said in an executive summary prefacing the Inflation Report.
“After the temporary, inflation-boosting effect of the oil price change has faded, from mid-2019 the rise in underlying inflation trends will ensure the sustainable achievement of the 3 percent inflation target,” the Council said.
The Council said the inflationary effect from the labour market “will remain moderate” as a further cut in the payroll tax counters the increase in labour costs. It added that the correlation between domestic labour costs and consumer prices has weakened in recent years, in line with international experience.
Wage growth in Hungary has been in the double digits since early last year, boosted by minimum wage increases and labour shortage.
As we wrote before, Hungary struggles hard with labour shortage which affects almost every sector of the economy. According to the latest data, there are 80 thousand unfilled workplaces in Hungary. The situation is getting worse in construction and industry, but there are considerable problems in transport, as well – reported the Hungarian Central Statistical Office (HCSO), read more HERE.
Meanwhile, the government has continued with a gradual reduction of the payroll tax rate.
The NBH raised most of its forecasts for inflation and GDP growth in the report from the previous one published in March. For this year, it put annual average inflation at 2.8 percent, up from 2.5 percent forecast earlier. It said GDP growth would reach 4.4 percent, up from 4.2 percent.
For next year, the inflation forecast was raised to 3.1 percent from 2.9 percent and the GDP growth forecast to 3.5 percent from 3.3 percent.
In 2020, the NBH sees average annual inflation reaching 3 percent, level with the mid-term “price stability” target. It puts GDP growth at 2.8 percent.
Commenting on the report, Finance Minister Mihaly Varga told public television that the government has not defined an inflation target but adapts to market trends. The forint is expected to return to 3 percent, he said. Markets appreciate the stability of the Hungarian economy and the fact that, “unlike other emerging countries”, Hungary did not have to introduce crisis measures.