Consumer prices rose by just 1.8% year-on-year in May, down from 2.1% in April and well below market expectations of around 2.2%. The reading also fell beneath the MNB’s 2-4% tolerance band, while core inflation eased to 2% from 2.2% a month earlier, highlighting the broad-based nature of the disinflationary trend.
The surprise decline has prompted analysts to reassess the inflation outlook and strengthened expectations that the central bank will resume its easing cycle as early as June.
“The latest data clearly support another rate cut,” MBH Bank analysts said, noting that both headline and core inflation came in lower than expected and remain comfortably below levels that would normally raise concerns among policymakers.
The biggest surprise came from food prices, which fell by 0.3% month-on-month despite expectations of a modest seasonal increase. Food prices account for more than 30% of the consumer basket and therefore have a significant impact on the overall inflation reading.
The annual pace of food inflation slowed dramatically to 0.5% from 1.5%. Analysts attributed much of the improvement to the strength of the forint, which has helped lower import costs and eased price pressures across several consumer categories.
The stronger currency appears to be exerting a broader disinflationary influence. Durable goods prices fell by 0.3% during the month, while inflation in industrial goods remained subdued. Analysts noted that the exchange-rate effect, which had previously been less visible in services, may now be feeding through into that segment of the economy.
Services inflation remains the main source of underlying price pressure, but even there, the latest figures were more encouraging than expected. Prices increased by just 0.2% on a monthly basis in May, below the seasonal norm. Annual services inflation accelerated to 4.3%, but MBH analysts Márta Balog-Béki and Zoltán Árokszállási stressed that the pace remains well below last year’s levels.
Within the services category, personal care, healthcare, cultural activities and tourism-related services continue to post relatively strong price increases. Economists largely attribute these trends to persistent wage growth, which has a particularly strong impact on service-sector businesses where labor costs account for a substantial share of total expenses.
Other components of the inflation basket also helped contain overall price growth. Household energy prices declined during the month, supported by administrative measures and favorable base effects. Fuel prices remained unchanged under the government’s regulated pricing regime, while prices in the broader category of miscellaneous goods also showed little movement.
The latest inflation figures suggest that price controls continue to play a significant role in suppressing short-term inflationary pressures. Regulated fuel prices, retail margin caps on selected food products, and temporary restrictions on some service sectors, have all contributed to keeping consumer prices contained.
According to analysts, as long as these measures remain in place, inflation is likely to stay relatively subdued, despite external risks. That said, economists caution that the current benign inflation environment will not last indefinitely.
Most analysts expect inflation to accelerate gradually during the second half of the year as some temporary factors fade and government support measures are eventually phased out. The timing and pace of the removal of regulated fuel prices and retail margin caps remain among the most important uncertainties for the inflation outlook.
While the government has indicated that these measures will eventually be withdrawn, no detailed timetable has been announced. Analysts argue that a gradual phase-out would likely spread the inflationary impact over a longer period, reducing the risk of a sharp, one-off price jump. However, a prolonged exit process could also lead households and businesses to anticipate higher inflation, potentially influencing pricing behavior.
Additional uncertainty stems from the expiration of voluntary fee freezes adopted by banks and telecommunications companies. Several providers have already announced fee adjustments once the current arrangements expire at the end of June, although the staggered implementation of these increases may limit their immediate impact on consumer prices.
External developments also remain a source of concern. Rising tensions in the Middle East have pushed up energy and commodity prices on international markets, raising the possibility of imported inflation later in the year. However, analysts note that these effects have not yet become visible in Hungarian consumer prices.
The MBH analysts note that corporate inflation expectations have already begun to rise, partly reflecting concerns about geopolitical tensions and higher energy costs. If businesses become more willing to raise prices, inflationary pressures could re-emerge more quickly than currently anticipated. Nevertheless, the overall inflation picture remains considerably more favorable than expected just a few months ago, the two analysts note.
“Current projections suggest average inflation could remain below 3% this year, with estimates ranging between 2.7% and 3%. Forecasts for 2027 generally point to inflation returning toward the central bank’s 3% target area after a temporary acceleration during the coming quarters,” Balog-Béki and Árokszállási said.
The stronger forint has been an important factor behind these revisions. Analysts believe currency stability could continue to moderate imported inflation and help contain price pressures even after government support measures begin to unwind. For monetary policymakers, the implications are increasingly clear.
The May inflation report appears to provide the central bank with what Erste Bank analyst Orsolya Nyeste described as a “green light” for further easing. Financial markets have already begun pricing in additional rate cuts, while economists broadly expect the MNB to lower its benchmark rate by 25 basis points at its June meeting.
Some market participants have even floated the possibility of a larger 50 basis points reduction following the unexpectedly weak inflation reading. However, most analysts believe policymakers will proceed cautiously, especially given the uncertainty surrounding future inflation dynamics and external risks.
Beyond June, the path of monetary policy remains less certain. Much will depend on the evolution of inflation during the second half of the year, the timing of the removal of administrative price controls, developments in global energy markets and the stability of the forint.
For now, however, Hungary’s inflation story has taken a surprisingly favorable turn. With headline and core inflation both undershooting expectations and price pressures remaining broadly contained, the MNB appears to have gained valuable room to continue easing monetary policy while keeping inflation expectations anchored.
This article was first published in the Budapest Business Journal print issue of June 19, 2026.
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