Inflation in Hungary: the worst is yet to come

The Hungarian market is undergoing a very intense re-pricing process. This process is affecting both products and services. The price index could reach 20 percent in September. What will happen to the price caps on fuel and some foodstuffs is an important question, market analysts say.

Huge inflation – and it will not end yet

For the first time in a long time, the latest inflation figure was slightly below expectations. However, this is small comfort, Napi.hu writes. The year-on-year indicator continued to rise at a very dynamic pace, reaching 15.6 percent in August.

On a monthly basis, prices rose by 1.8 percent, which is highly unusual, as historical data suggest that prices tend to change only slightly in the summer,” said Péter Virovácz, Senior Analyst at ING Bank, commenting on the latest data from the Hungarian Central Statistical Office (KSH). In addition, core inflation (which does not include volatile items) has dramatically exceeded expectations: in August, it jumped to 19 percent on an annual basis.

In addition, consumer prices were on average 15.6 percent higher than a year earlier, according to KSH data. Food prices rose by 30.9 percent compared to July last year, 444.hu reports. Within this, for example:

• food inflation rose more than expected,
• consumer durables also rose more dynamically than expected,
• fuel prices rose less than expected, despite the price cap change.

Several factors can keep prices high

The analyst expects further acceleration in inflation indicators. Rising energy and other input costs could keep prices high. Meanwhile, the restructuring of the utility cuts could also raise headline inflation by another 2-3 percentage points from September. This will be compounded by specific effects such as the extraordinary restructuring of the parking tariffs in the capital and the broad-based price increase of almost 10 percent announced by Hungarian telecommunication service provider Magyar Telekom.

Inflation could rise by a further 4-5 percentage points if price restrictions on certain food and fuel products are abolished completely. However, removing price restrictions could also lead to a faster decline in inflation if the prices of the products concerned fall. The Hungarian National Bank (MNB) is expected to continue its cycle of interest rate hikes.

Source: Napi.hu, 444.hu, DNH