Hungary’s central bank has said it expects a decline in inflation to become “increasingly pronounced” in the second half of 2023 owing to both internal and external factors.
Further, slowing economic growth is set to see a “quick rebound” from July, central bank director András Balatoni said on Thursday, presenting the National Bank of Hungary’s latest quarterly Inflation Report.
The report puts inflation in the 15.0-19.5 range for 2023 following a range of 14.5-14.7 expected this year.
Concerning the external factors contributing to the decline in inflation, Balatoni mentioned the decline in the world market prices of energy and raw materials, the easing of difficulties in production chains and a fall in global food prices and freight costs. As regards internal factors, he noted the slowdown of economic growth, a fall in disposable incomes and consumption as well as the fading of the base effects of tax measures.
He attributed Hungary’s inflation rate of more than 20 percent to energy prices and rising costs. Businesses priced their products well above their costs and corporate profits rose by 34 percent compared with the previous year, he added. Profits are also up in other regions, Balatoni said, but not to the extent that they are in Hungary. He said inflation could “no longer be explained by rising costs”, insisting that businesses had “overcompensated”.
Hungary saw the highest rises in food prices, Balatoni said, noting that they were significantly higher than elsewhere in the region. “The causes behind this massive price increase across a wide variety of products needs to be looked into,” he added.
Processed food prices rose by 25 percent, while unprocessed food inflation was 18 percent, Balatoni said.
Food imports also pushed CPI up, he said, noting that the weakening of the forint was quickly reflected in consumer prices. Market players compensated for the effects of the food price caps, he said, adding that retail sales had even increased rather than decreased. Balatoni said it was questionable as to whether retailers will immediately lower the prices of goods that they had raised once the price caps are scrapped.
He also said that the price caps had increased demand for certain products, which had led to production chain disruptions. He pointed out that as a result of the price caps it had become 25 percent cheaper to buy cheese from Poland, while chicken cost less when imported from Romania.
Meanwhile, he said the economic rebound projected for the second half of next year was based on continued investments and high employment.
Balatoni noted that the central bank puts GDP growth next year at 0.5-1.5 percent and at 3-4 percent in the following years.