Consumer prices were 5.6% higher on average in February 2025 than a year earlier. Over one month, consumer prices rose by 0.8% on average, within which food became 1.2% more expensive, the latest data published by the Central Statistical Office (KSH) shows. A price increase of 7.1% was recorded for food on a year-on-year basis, while it became 1.2% more expensive on average from the previous month.
In response to the worse-than-expected data, the government has introduced what it hopes will be a protective measure in which supermarkets’ margins over procurement prices will be capped at 10% for 30 basic food groups. The measure came into effect on March 17.
Analysts were surprised by the February data and, in response, are starting to revise their inflation expectations for this year upwards.
“The actual figure exceeded both our expectation of 5.2% and the market consensus of around 5.3%,” Erste Bank analyst Orsolya Nyeste said in reaction to the fresh data. “What is particularly unfavorable is that core inflation rose faster than the overall inflation rate, to 6.2% from 5.8% in January, which also indicates increasing price pressure in the Hungarian economy regarding longer-term inflation trends.”
In the case of food, further monthly price increases had been expected. However, the extent was still surprising, especially in light of the expansion of the price monitoring system and the messages the government had been sending retail chains, Nyeste said.
A further, stronger-than-expected increase in food prices clearly caused the high inflation in February. The continued intensive upward pricing of the service sector is also very unfavorable, but this was more or less predictable, according to Nyeste.
The latter is also negative from the point of view that, a few months ago, the service sector could have been expected to support the disinflation process even more. Instead, the process has turned in the wrong direction again, which is particularly unpleasant from the point of view of monetary policy decision-making and suggests permanently tight conditions. She stressed that another significantly negative inflation surprise next month might necessitate further upward revision of inflation forecasts.
Gábor Regős, the head macroeconomist at Gránit Alapkezelő [Fund Manager], also labeled the inflation data an “unpleasant” surprise. The market expectation was that the rate of monetary deterioration would slow from 5.5% to 5.3% in February; instead, it accelerated to 5.6%.
It can, therefore, be stated that inflation is once again becoming an increasing problem in the economy and needs to be addressed. Rapid monetary deterioration erodes the value of earnings, thus also posing a threat to growth. In other words, the fresh data not only sees inflation prospects creeping up but also indicates realistic growth prospects are going down.
“The two most important groups, food and services, had the highest annual inflation, at 7.1% and 9.2%, respectively,” Regős said. “Surprisingly, the price increase of durable consumer goods was only 1.6%. The weakening of the forint is felt most strongly here, so the entire price increase cannot be attributed to the forint, as it is clear that not only cost-side factors play a role in high inflation, but also the increase in profit rates,” he added. The new governor of the National Bank of Hungary, the former Minister of the Economy Mihály Varga, begins his mandate at a time when inflation is on the rise, Regős noted.
“Although there will hopefully be some moderation in the coming months due to base effects, it is largely certain that annual inflation will be above 5%; the question is whether the estimate should be raised to 6% after the next few data releases,” the Granit head macroeconomist said.
“As a result, a loosening of monetary policy is out of the question, and tightening may increasingly be on the agenda; for now, only at the communication level. What is also certain, however, is that an additional pension increase will also be necessary this year, which will mean an expense for the budget,” Regős added.
According to ING Bank analyst Péter Virovácz, inflation has given the markets unwelcome news for two months on the trot. Based on the details, one of the significant sources of the strong one-month jump was the further increase in the price of food.
Minister for National Economy Márton Nagy alluded to this in his speech just before the data came out. The government feels it has the tools at its disposal to break the official inflation statistics. At the same time, as previous examples have shown, these interventions may have drawbacks that are currently difficult to quantify, Virovácz warned.
According to him, we should be more afraid of the recessional impact of inflation than a price-wage spiral. In addition to perceived cost rises, the increase in core inflation to 6.2% should warn the central bank to be cautious. In the current situation, a hasty monetary step to stimulate the economy could only further aggravate the inflation shock through the depreciation of the forint. The inflation situation is, therefore, deteriorating on all fronts and this significantly narrows the room for maneuver in monetary policy, says Virovácz.
As a result of February’s inflation indicator, ING Bank has again revised its inflation forecast for this year. Having raised its annual average inflation expectation for this year to 5.1% after the January data, in light of the fresh figures, the new forecast is now 5.6%.
“The rate will likely fluctuate between 5% and 6.5% for the rest of the year. With such an inflation outlook, there is an increasing chance of another serious negative surprise in economic performance,” Virovácz concluded.
This article was first published in the Budapest Business Journal print issue of March 21, 2025.
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