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Food, market service prices set to lift 2020 CPI

The National Bank of Hungary (MNB) expects a marked rise in food prices, as well as higher prices for market services, and alcohol and tobacco to lift headline inflation this year, Hungary news site MTI says, citing a quarterly report released on Thursday.

Photo by Jessica Fejos

MNB augurs an 8.5-8.7% increase in food prices this year, including a double-digit, 13% rise in non-processed food prices, in its latest Inflation Report.

The bank attributed the marked rise to a decline in supply because of border closures due to the pandemic and an expected weak local fruit and vegetable harvest because of bad weather.

It projects a 4.4-4.5% in the prices of market services and a 6.7% increase in alcohol and tobacco prices, attributing the latter mainly to higher taxes.

MNB forecasts a 6.1% fall in vehicle fuel prices for the year.

The bank said on Tuesday that it raised its forecast for headline CPI in 2020 to 3.2-3.3% in the fresh Inflation Report from 2.6-2.8% in the previous one released in March.

The central bank only tweaked the range of its forecast for core inflation excluding indirect tax effects - a bellwether indicator of underlying inflation - to 3.3-3.5% from 3.2-3.5%.

MNB puts CPI for 2021 at 3.2-3.3%, too, before falling to the 3% medium-term target in 2022.

"Inflation remains highly volatile, but as the effects of volatile, cost-sensitive items fade, inflation will stabilize close to the 3% inflation target," according to the report.

The report sees core inflation excluding indirect tax effects reaching 2.6–2.7%in 2021 and 2.9pc in 2022.

MNB augurs V-shaped recovery

MNB projects GDP growth of 0.3-2% this year, well under the 2-3% it forecast in March, but far more optimistic than the governmentʼs expectations for an economic contraction of as much as 3%.

The bank expects a "V-shaped recovery", supported by successful health protection measures, rising public investments and corporate lending, and the exploitation of growth reserves provided by household consumption.

MNB projects a 5.5-6% rise in government investments this year, supported by more effective utilization of European Union funding, ahead of a 6.6-8.1% decline in 2021.

The report noted that Hungarian householdsʼ high savings rate and net financial wealth, as well as additional disposable income created by a moratorium on retail loan repayments, could give household consumption a boost starting in the second half of the year.

MNB projects the economy will expand 3.8-5.1% in 2021 and 3.5-3.7% in 2022.