Unexpected turn: Hungary no longer has the highest inflation in the EU
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For months, Hungary was leading the list of inflation in the EU, even if recent figures in November indicated a minor improvement. Nevertheless, Hungary was still expected to close the year with the highest inflation rate in the EU. However, after a prolonged period, another country has now seized that dubious distinction.
Fresh data
Portfolio writes that Eurostat has released the latest national inflation statistics. Contrary to expectations, according to the harmonised inflation indicators, Hungary did not have the highest annual inflation in the EU in November. When discussing inflation in the EU, we should also note that the EU methodology differs slightly from the methodology used by the member states. Thus, the two figures may differ slightly. However, international comparisons can only be made based on the Harmonised Index of Consumer Prices HICP using the common methodology.
Shift in inflation leadership
For about a year, Hungary held the undesirable title of having the highest inflation in the EU. However, this pattern was broken in November when Czechia assumed the lead. Hungary recorded an annual inflation of 7.7%, whereas Czechia surpassed it with 8%. The statistics also highlight that Central and Eastern European countries are the weakest performers in terms of price increases. Slovakia and Romania, both neighbouring countries, registered an annual inflation of 6.9%, while Poland recorded 6.3%. In November, the European Union averaged 3.1%, and the eurozone averaged 2.4%. This underscores the substantial impact of inflation on Central and Eastern European countries. While not the worst performers, the statistics provide little cause for contentment, particularly given Hungary’s cost of living increase since the onset of the energy crisis.
The ECB’s target inflation rate is 2% – NOT BELOW due to the risk of deflation as described here: “Reasons for our inflation target of 2%. An inflation rate of 2% is low enough for the economy to fully reap the benefits of price stability while also underlining the ECB’s commitment to the following.
Providing a safety margin against the risk of deflation and making sure monetary policy remains effective when it needs to respond to inflation that is too low. Having a margin against deflation is important because there are limits to how far interest rates can be cut. In a deflationary environment monetary policy may not be able to sufficiently stimulate the economy by using its interest rate instrument. This makes it more difficult for monetary policy to fight deflation than to fight inflation.”