Hungary saw its annual inflation rate drop to 1.3% in August, falling well below the Hungarian National Bank’s target and slightly under market predictions. This decrease was primarily attributed to a stronger forint, lower global food prices, subdued inflation expectations, and ongoing price caps. Monthly consumer prices rose by 0.2% from July, and core inflation experienced a modest increase from 1.9% to 2.0%. The inflation rate for August was beneath the 1.4% rise forecasted by analysts, remaining outside the central bank’s target range.
Despite the low overall inflation, signs of rising price pressures began to appear. The costs of fuel and services went up, and a weaker forint led to higher prices for durable consumer goods and fuel. Conversely, food prices continued their downward trend, and clothing prices dropped in line with seasonal patterns. Economists anticipate that inflation will gradually climb as the year progresses, with ING Bank predicting a slight increase to above 2% by December and an average inflation rate of around 1.7% to 1.8% for the year.
The current inflation figures might provide the Hungarian central bank with the opportunity to continue reducing interest rates. ING Bank projects that the key rate could decrease from the present 5.5% to 5% by year-end. However, further rate cuts could be postponed due to factors such as the weaker forint, rising energy prices, global market volatility, and geopolitical risks.
Erste Bank anticipates that the central bank will maintain its inflation target at the upcoming September meeting, potentially paving the way for further monetary easing. Nonetheless, uncertainties in global bond markets and geopolitical tensions might prompt the Monetary Council to pause its rate-cutting measures. Analysts caution that inflation could rise later in the year due to potential hikes in fuel costs and food prices linked to drought conditions. However, slower wage growth and limited company plans to increase prices may help mitigate broader inflationary pressures.