NBH director: Inflation to peak in autumn

Inflation is expected to peak in autumn 2022, then gradually subside until it reaches the central bank’s tolerance band at the end of 2023, and the NBH target of 3 percent by 2024 H1, the director of the National Bank of Hungary (NBH) told a press conference on Thursday, presenting the quarterly Inflation Report.

Gergely Baksay noted that the NBH has raised its inflation forecast to 11.0-12.6 percent for 2022, from 7.5-9.8 percent in the March report.

Inflation is growing, and the growth accelerating, in all of Europe, hitting a wide range of products, he said. Hungarian inflation is the lowest in the region, thanks to price caps introduced on basic goods, which stop energy price hikes from raising customer prices, he said.

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The government measures are expected to moderate inflation by 4.3 percentage points in 2022 and 0.7 of a percentage point in 2023, Baksay said, noting that the estimate was based on the technical assumption that the price caps would be phased out gradually from October 1, 2022 until June 30, 2023.

Monthly price increases have accelerated significantly, to 3-4 times their level in previous years, he said. Food prices could increase by more than 20 percent in the coming months, he added. Raw material and energy costs are close to peaking so these are not expected to rise significantly further, he said. Producer prices are still rising so these are still passing through into consumer prices.

The NBH raised its GDP growth forecast in the fresh report to 4.5-5.5 percent in 2022 from its earlier projection of 2.5-4.5 percent.

The NBH expects higher, consumption-driven growth this year. In 2023, it expects economic growth to decelerate, mainly due to a decline in household consumption.

In addition to consumption, investments will also decelerate in 2023, mainly due to the curbing of state investments. Looking forward, rising costs will also hold back the corporate sector’s investment activity, although the investment ratio will stabilise at a high level, at above 27 percent.

The NBH expects the current account deficit to temporarily rise to 6 percent in 2022. This year’s narrowing of the foreign trade deficit can be attributed to the deteriorating terms of trade, the slowdown in external markets and the import requirement of the strong domestic demand, it said.

The NBH expects the budget deficit to fall to 4.9 percent of GDP this year and 2.5 percent in 2024.

The public debt-to-GDP ratio could fall below 75 percent in 2022 from 76.6 percent at the end of last year, Baksay said.