Rate-setters augur slower decline in CPI in 2022

Analysis

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Members of the Monetary Council of the National Bank of Hungary (MNB) agreed inflation would probably fall at a slower rate in 2022 as domestic demand ramps up, the minutes from a monthly policy meeting in November show.

"With regard to the outlook for inflation, the decision-makers pointed out that external factors having an upward effect on inflation were likely to be more persistent than previously expected, while inflation was likely to decrease more slowly in 2022, reflecting strengthening domestic demand," according to the minutes released on Wednesday.

The minutes confirm members expect CPI to climb over 7% in November, which "clearly reinforced" that inflation has moved from the baseline projection in the central bank's last quarterly Inflation Report to the risk scenarios.

MNB last released its Inflation Report in September. The next report is due out at a policy meeting in December.

"Council members agreed that the path for inflation had moved upwards, and the achievement of the inflation target had shifted out recently," the minutes show.

"Several members pointed out that the tight labor market, coupled with rising wage growth and a higher inflation environment, might lead to a pick-up in inflation expectations and an increase in second-round inflation risks," according to the minutes.

The council voted unanimously at the meeting on November 16 to raise the central bank base rate by 30 bp to 2.1%. The policymakers accelerated the tightening cycle following 15bp hikes in the previous two months after October CPI spiked at 6.5%.

The members signaled a "more extensive" and "longer lasting" tightening cycle after the meeting.

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