FinMin raises 2006 inflation projection to 3.5%

Analysis

The Finance Ministry projects average annual inflation of 3.5% in 2006 in its latest projection, up from 2% projected in April, before the announcement of government austerity measures, business daily Napi Gazdaság reported on Thursday.

The projection puts year-end twelve-month inflation as high as 6%. The ministry projects rising unemployment paired with slowing household consumption and investments. Real wages are expected to rise just 3%-4%, compared to 4%-6% projected in April, although gross wages could rise faster. Investments are expected to slow to 6%-7%.
Businesses showed more caution already in the first quarter of the year, making net savings. With households in a poor position to make savings, Hungary's external financing could increase, widening the current account deficit, and causing the budget deficit to swell as well. The situation is eased, however, by the exclusion from the Budget Act of Ft 238 billion in debts from the National Motorway Rt (NA), Napi Gazdaság writes.

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