In recent years, we had grown used to inflation figures bringing unpleasant news: rising prices, soaring food bills or ever more expensive fuel. For the first time in a long while, however, Hungary’s inflation rate can be discussed in a positive context, having fallen to a ten-year low. Experts explain what lies behind the plunge – and what may be in store over the coming months and year.
Even experts surprised by low inflation
The public’s experience of prices in recent years could be summed up as follows: although everyone was earning more in nominal terms – something Orbán’s governments were only too keen to boast about – our money somehow bought less and less. High wage growth was accompanied by even higher price rises, with some sectors becoming prohibitively expensive. The property market alone is enough to illustrate the point.
For the first time in many years, shoppers may now be finding that their money goes further in certain cases. One reason is that Hungary’s inflation rate has fallen to a ten-year low – a development that also caught Hungarian experts by surprise. Annual inflation stood at just 1.2 per cent in July, well below the 1.5 per cent previously forecast. According to portfolio.hu, Hungary has not seen inflation this low since 2016. Analysts had expected annual inflation of 1.5 per cent in July, following figures of 1.7 per cent in June, 1.8 per cent in May and 2.1 per cent in April.
The economic news website attributed the sharp slowdown in inflation to three factors:
- favourable trends in food prices;
- calmer conditions in fuel markets;
- a strong forint.
Reasons for concern remain
The newspaper also pointed out that core inflation rose by 0.3 per cent, which is not low. Moreover, inflation plunged because of factors beyond the authorities’ control – external forces that could change in the future.
Services have also become significantly more expensive. Major telecommunications and financial-services providers have now raised their prices after exercising “restraint” before the election, at the request of the previous government. According to portfolio.hu, this caused a “smaller price shock” across the services sector.
The central bank could cut interest rates further in the future, the outlet said. The only reasons for caution, at most, would be turbulent geopolitical developments and volatility in energy markets.
What experts expect next
Gábor Regős, chief economist at Gránit Fund Management, said that the strong forint, low inflation expectations and rising business confidence had combined to create an environment of subdued inflation, MTI reports. The National Bank of Hungary could therefore cut its base rate to 5 per cent in September, even if the forint continues to weaken.
Orsolya Nyeste, Erste Bank’s chief macroeconomic analyst, said July’s figure could prove to be the annual low. Inflation may edge up from August onwards, but is expected to remain below the central bank’s 3 per cent target.
Dávid Németh, chief analyst at K&H Bank, emphasised that rising gross wages had pushed up the cost of services. He expects inflation to remain below 2 per cent for the rest of the year, with the annual average likely to come in at around 1.8 per cent.
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Dániel Molnár, chief analyst at the GFÜ Centre for Economic Analysis, said the poor harvest caused by drought could feed through into food prices. The current energy crisis, meanwhile, is forcing companies to reassess how they calculate their energy costs. Inflation is likely to accelerate next year, he predicted, reaching around 3 per cent.
Record fall in food prices
The National Trade Association highlighted a 4.4 per cent fall in food prices, which is almost certainly a record. It said the decline was not the result of the margin cap, but of the favourable exchange rate of the forint and positive domestic and international market trends. These had more than offset the increase resulting from rising energy costs.
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“Even experts are surprised…”
We keep hearing this pretty often, don’t we now!
Just the other day, “even” the “experts” were surprised that the Danube River’s water level had risen slightly.
It’s almost as if “experts” are not omniscient.
It’s almost as if we shouldn’t blindly take the views of “experts” as gospel, let alone their proposed “solutions.”
Also, it’s almost as if by magic that inflation plummeted just as St. Peti got elected.
It’s almost as if the 5%+ inflation during Fidesz’ administration was confected by external forces. Surely not, though wouldn’t have been the first time by any means.