Hungary to Face High Inflation Well into 2023


The inflation rate broke a nearly 26-year record in September, reaching 20.1%. Analysts expect high prices will remain a factor for the majority of next year as well.

Climbing slightly above expectations, Hungary’s September data also saw a 20.7% core inflation. The acceleration was mainly attributed to suddenly jumping overhead costs and rising food prices.

In one month, consumer prices increased by 4.1% on average. Compared to September 2021, a price rise of 35.2% was recorded for food, within which the highest price increase was for bread (76.2%).

Due to the changes in the regulations on household utility prices effective from August 1, the cost of electricity, gas and other fuels went up by 62.1% on a yearly basis.

In a monthly comparison, consumer prices increased by 4.1% on average. Food became 3.5% more expensive. The cost of electricity, gas and other fuels went up by 59.2% due to the rise of natural and manufactured gas as well as electricity prices.

Raised Projections

“After the September data, we will most likely have to revise our forecast for peak inflation, which anyway projects a peak in December with inflation of 20.8%”, commented Péter Kiss, Amundi’s investment director.

According to him, an essential question for the next period is how the data will affect monetary policy. The central bank has somewhat tied its own hands by announcing the end of the interest rate hike cycle, although it has continued to tighten through other tools, as it said it would.

One positive factor in the data is that despite the weak forint, consumer durables did not exert more significant pressure; indeed, a year-on-year decrease was already observable, Kiss noted. He believes inflation of around 20% could be maintained in the coming months and expects a substantial decrease only from the second quarter of next year. Of course, this is only valid if the price stops are maintained, he added.

ING Bank analyst Péter Virovácz pointed out that the weakening of the forint significantly affects the price of imported products, which can put further upward pressure on inflation. In addition, an increasing proportion of companies are faced with higher energy bills, which may trigger new rounds of repricing. This can drive up the price of industrial products and services. In light of the September data, this year’s average annual inflation may reach 14%, and next year, the average may be even higher, at around 15%, Virovácz war.

According to Bankholding analyst Gergely Suppan, inflation, which will continue to rise in the coming months, could reach 24-25% without the price restrictions. However, the measures introduced in the case of certain foodstuffs have largely been passed on to other products, he noted. Inflation may rise slightly above 21% by the end of the year, but from the beginning of 2023, he expects inflation to decrease due to base effects.

The outlook for inflation is still not favorable, and according to Erste Bank calculations, the annual rate of price increase may remain above 20% even into the second quarter of 2023, said analyst János Nagy. He does not expect to see a single-digit inflation rate again until next September at the earliest, although there is significant uncertainty in this, he warns.

High Rate to Remain

In its latest forecast, the International Monetary Fund also warned that the inflation rate might linger at a higher level in Hungary for some time.

After 5.7% economic growth in 2022, activity may slow down significantly next year, and the IMF now expects only 1.8% growth. However, the forecasts of the latest World Economic Outlook (WEO) publication are still higher than the figures in the National Bank of Hungary’s recently published inflation report. The central bank expects economic growth of 3-4% this year and 0.5-1.5% in 2023; compared to this, the IMF forecast is rather optimistic.

According to the IMF, there will be hardly any decrease regarding the annual average inflation next year; after this year’s 13.9% figure, the price increase may still be at 13.3% in 2023. Incidentally, this also falls within the relatively wide range estimated by the MNB.

Energy prices are 40-50% directly responsible for the current generally high inflation and 30% indirectly, Prime Minister Viktor Orbán recently claimed. That means the inflation is clearly the result of the failed sanctions policy, he emphasized.

Had Hungary not been able to exempt itself from the oil and gas sanctions, inflation would be even higher, and there would not be enough energy, he claimed. According to him, the government, fortunately, has experience in how to fight inflation from when it first returned to power in 2010.

“I asked the governor of the central bank and instructed the finance minister that by the end of next year, this inflation should at least be halved to single digits,” Orbán said.

Numbers to Watch in the Coming Weeks

The Central Statistical Office (KSH) will publish August earnings data on October 24. A few days later, the KSH will release the September labor market figures.

This article was first published in the Budapest Business Journal print issue of October 21, 2022.

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