Inflation to rise on energy prices, taxes - GKI

Analysis

Hungarian inflation will accelerate this year to the fastest since November 2004 after the government increased energy prices in August and raised the rate of value-added tax in September, research institute GKI said. Budapest-based GKI raised its forecast for this year's average annual inflation rate to 3.7% from 3.3% and predicted the rate would reach 5.8% in December, the institute said in an e-mailed statement today. Hungarian inflation is expected to accelerate as Prime Minister Ferenc Gyurcsány raises taxes and regulated prices, including natural gas, electricity, drugs and public transport to cut the country's budget deficit, the European Union's biggest compared with the size of the economy. „Inflation is expected to peak in the early summer of 2007, which will be followed by a rapid fall,” GKI said. Inflation will rise this year „as a result of the increase of energy prices in August and the rise of VAT in September.” Hungary's central bank raised its benchmark interest rate by 50 basis points to 7.25% Aug. 28 on concerns the rate of inflation will reach 7% next year and the bank will miss its 3% inflation target in 2008. Economic growth slowed down in the second quarter of this year and it will not significantly slow further through the year as European economic growth is not expected to deteriorate and slowing consumption will affect imports rather than domestic production, GKI said. The widening of Hungary's budget deficit will slow down this year and investors' confidence and the forint exchange rate will gradually strengthen, GKI said. „Hungary's view, however, may significantly improve only next year with the knowledge of facts about the deficit spectacularly decreasing through several months,” GKI said. (Bloomberg)

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