In August 2024, inflation returned to the 2-4% tolerance band of the National Bank of Hungary (MNB): consumer prices rose 3.4% year-on-year. The annual inflation rate was 0.7 percentage points lower than in July, the MNB writes in its latest assessment. In July, the annual inflation rate was put at 4.1%. The last time inflation was as low as this was before at the beginning of 2021.
Compared to August 2023, a price increase of 2.4% was recorded over the past 12 months for food, while services became 9.5% more expensive. On the other hand, electricity, gas and other fuels became 4.3% cheaper. In one month, compared to July 2024, consumer prices were unchanged on average.
“As expected, inflation slowed in Hungary in August. However, the recent data caused a downward surprise compared to the market consensus. Annual inflation fell from 4.1 to 3.4% in August. The repeated decrease in inflation was partly due to the monthly stagnation of the average price level and last year’s high base,” ING Bank head analyst Péter Virovácz said.
According to him, the monthly repricing, which slowed significantly compared to the previous month, can be traced back to several components.
In the case of food, following a jump in July, the price increase did not continue in August. It seems that lifting price caps and mandatory store promotions resulted only in a one-time price hike rather than a permanent, trend-like increase.
In addition, a substantial price drop was observed in the case of fuels, which followed a serious price increase, meaning that this too significantly contributed to the inflationary turn. The price of household energy also fell further, contributing to the favorable inflation rate.
Last but not least, services should also be included among the items that improve the inflation picture, Virovácz says. On a monthly basis, the price increase was only 0.4%. Compared to the usual seasonal repricing, we saw more moderate price increases in many areas, including holiday and transport services.
Based on the details, it can be said that, while in recent months, the favorable development of items outside the core inflation basket mainly curbed inflation, the more significant core inflation items also took a more positive inflation turn last month.
“It is still questionable how long this will last, but we can definitely talk about an improving inflation picture. Contrary to expectations, the core inflation indicator did not increase but rather decreased somewhat compared to July. It’s just that the rounding to one decimal place helped the indicator decrease,” says Virovácz.
“Looking ahead, next month, we expect an inflation indicator roughly similar to what we saw today, perhaps with a minimal slowdown. However, after that, the year-on-year indicator may jump more significantly due to the low base,” Virovácz warns. According to him, starting in October, the figure could rise above 4% again.
“Observing the current basic inflation processes, we see that the rate of price increase may rise again to 4.8% in the second half of this year. All this significantly limits the ability of companies to reprice, even in an environment where they face a significant increase in costs,” predicts Virovácz.
Dávid Németh, senior analyst at K&H, says: “Compared to our expectations, monthly inflation was driven down by manufactured goods, alcoholic beverages and tobacco products, which showed stagnation compared to July. Food also stagnated in line with our forecast.”
He agrees that the inflation of market services has slowed but notes that it is still above the multi-year average.
Regarding annual core inflation, he says that it slowed to 4.6% in August from 4.7% in July. In the coming months, it may remain in the range of 4.5-5%, which still indicates inflationary pressures.
According to the analyst, inflation in September may be around 3.5%, but it could be closer to core inflation by the end of the year, at around 4.8% in December. Németh expects an annual average of 3.9% and a pace of 4% for 2025.
“Based on the current data, the MNB is expected to cut interest rates by 25 basis points in September. By the end of the year, based on the current prospects, we can expect another similar reduction,” Németh predicts.
Gábor Regős, senior analyst at Gránit Alapkezelő, says the latest inflation data is significant from the point of view of the interest rate decision in September; the Monetary Council of the MNB will hold its policy meeting on Sep. 24.
“This clearly supports an interest rate cut (and thus weakens the forint), similar to the interest rate cut expected from the major central banks. However, in relation to the evaluation of inflation, it is also worth highlighting that core inflation is higher than total inflation, as it stands at 4.6%, and this shows that the inflationary pressure has not completely disappeared from the economy. Services play a big role in this, but due to retrospective pricing, a lower price increase is expected next year,” Regős believes.
At the same time, the weak exchange rate and budget data could be an obstacle in terms of interest rate cuts; the latter, in particular, dramatically worsens risk perception.
This article was first published in the Budapest Business Journal print issue of September 20, 2024.
Producing journalism that is worthy of the name is a costly business. For over 30 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.
