Hungary’s inflation rate dropped to an annual 1.3% in August, falling below the target set by the Hungarian National Bank and slightly lower than market predictions. Consumer prices rose by 0.2% compared to July, while core inflation saw a minor increase from 1.9% to 2.0% over the year. Economic experts attributed this notably low inflation to factors such as a stronger Hungarian forint, dampened inflation expectations, decreased global food prices, and ongoing price caps.
Despite these figures, some inflationary pressures started to appear. The cost of fuel and services rose, and a weaker forint led to higher prices for durable goods and fuel. However, food prices continued their decline, and clothing prices followed a seasonal downward trend. Economists anticipate that inflation will rise gradually over the rest of the year. According to ING Bank’s forecasts, annual inflation could exceed 2% by December, while the average inflation rate for the year might hover around 1.7% to 1.8%.
The recent inflation data may provide the central bank with an opportunity to further reduce interest rates. ING Bank predicts a reduction in the key interest rate from 5.5% to 5% by year-end. However, potential delays in these rate cuts could arise due to the weaker forint, increasing energy prices, global market volatility, and geopolitical uncertainties. Erste Bank projects that the central bank will maintain its current inflation target during its September meeting, which could pave the way for additional monetary easing.
Nevertheless, global bond market uncertainty and geopolitical tensions might prompt the Monetary Council to reconsider continuing its rate-cutting strategy. Analysts caution that inflation could accelerate later in the year, driven by rising fuel costs and potential food price hikes due to drought conditions. Although slower wage growth and companies’ limited plans for price increases could help mitigate broader inflationary pressures.