Will Hungary face a new wave of skyrocketing inflation in 2025?

The inflation rate in Hungary has clearly accelerated in recent months, from the 3% target set by the central bank in September to 3.7% in November and 4.4% in December, according to analysts’ expectations.

This increase is not entirely unexpected, as experts had already predicted that prices could accelerate by the end of 2024 due to the low base period in 2023 and the recessionary effects. The acceleration in inflation is partly due to technical factors, but the weak forint and international commodity price increases also play a significant role.

Drivers of inflation

According to Portfolio, inflation is being driven by several factors. One of the most important is the rapid increase in the prices of basic consumer goods, especially food. Food prices were lower in the second half of 2024, partly due to the recession and the fall in energy prices, but in December, the prices of dairy products, eggs and other staples resumed their significant rise. Global market developments, such as higher prices for chocolate and coffee, also contributed to the price increases.

The weakening of the forint exchange rate has a tremendous impact on inflation. A quarterly depreciation of 3.4% against the euro and 11.1% against the dollar increases the inflation rate by more than 1 percentage point, although the effect is gradual over several months. Therefore, inflation in December and price increases in the following months could be critical.

Inflation and government bond yields

Consumers are particularly sensitive to changes in the price of everyday consumer goods, which is one of the most visible effects of inflation. Food prices have risen faster than the average inflation rate, putting a greater burden on households. Analysts expect inflation to peak in January 2025, reaching as high as 4.7%, as a result of the weak forint and tax hikes earlier this year.