Core inflation to reach 3.6% in 2020


The National Bank of Hungary (MNB) projects core inflation excluding indirect tax effects - an indicator of underlying inflation that is closely watched by rate-setters - to rise next year before falling in 2021 and reaching 3% in 2022, the central bankʼs quarterly Inflation Report published on Thursday shows, state news wire MTI reports.

MNB puts core inflation excluding indirect tax effects at 3.4% in 2019, 3.6% in 2020, 3.1% in 2021 and 3% in 2022.

MNB said that the risk of recession in Western Europe, the home to Hungaryʼs biggest export markets, had declined, but added that external demand and inflation are expected to "remain persistently moderate".

Among domestic factors affecting the inflation outlook, MNB noted the impact of domestic demand on companiesʼ leeway in pricing and said that wage growth could be in the double digits in 2020, too. It added that inflation expectations "remain anchored".

MNB raised the forecast for headline inflation in 2020 to 3.5%from 3.4% in the previous Inflation Report. But it left the forecasts for 2019 and 2021 unchanged, both at 3.3%.

CPI "is expected to rise further temporarily until January 2020, mainly reflecting the base effect of fuel prices and the increase in food prices," MNB said, adding that "Following a gradual decline, inflation is likely to stabilize at the 3% inflation target in the second half of the forecast horizon."

MNB also pointed out the effect on inflation of the higher excise tax on tobacco products, to be raised in three steps from January 2020 until January 2021, which will only be partly offset by the reduction in the VAT rate on commercial accommodations from 18% to 5% from January 1, 2020.

Core inflation to reach 4% in 2020

MNB forecasts core inflation, which excludes volatile food and fuel prices, to climb from 3.8% in 2019 to 4% in 2020, before falling to 3.4% in 2021 and 3% in 2022.

Non-core inflation could be lifted by the impact of outbreaks of African Swine Fever (ASF) on global pork prices, while fuel prices are "projected to be moderate" and regulated energy prices "will not change until the end of the forecast horizon", MNBsaid.

GDP forecasts raised

The fresh Inflation Report projections show MNB expects higher rates of GDP growth across the forecast horizon.

The central bank raised the forecast for 2019 GDP growth to 4.9% from 4.5%.

Hungaryʼs GDP rose an unadjusted 5.1% year-on-year in Q1-Q3, the latest data from the Central Statistical Office (KSH) show.

MNB bumped up the forecast for GDP growth in 2020 to 3.7pc from 3.3pc, and the forecast for 2021 to 3.5pc from 3.3pc. It projected - for the first time - economic growth of 3.5pc for 2022.

MNB said the rate of consumption growth is "likely to slow somewhat", but private sector investment activity is "expected to remain buoyant". That level of investment activity is likely to boost imports in the short term, but the creation of new production capacities is expected to support Hungaryʼs exports and potential output growth over the longer term, it added.

MNB assumed the growth rate in Hungaryʼs most important export partners, weighted by share of exports, will be 1.8% this year and next, and 1.9% in 2021 and 2022.

Market players see trade tensions between the United States and China to be the biggest risk to global growth, MNB said, adding that as a result of increased uncertainty, companies are putting off investments, impairing both short- and medium-term growth prospects.

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