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Hungary's inflation may have accelerated as energy bills jumped

Hungary's inflation rate probably rose in July to the highest this year after oil soared, making it more likely the central bank will keep raising interest. Consumer prices may have risen 2.9% from a year earlier, after increasing 2.8% in June, according to the median estimate of 17 economists in a Bloomberg survey. The monthly gain was 0.1%, following 0.3% in June. The government will release the report at 9 a.m. in Budapest tomorrow. Crude oil near $77 a barrel has driven up everything from utility bills and transportation to food. Hungary has the highest interest rates in the European Union and the central bank may increase them later this year to contain inflation, economists say. Fuel prices are pulling inflation upward. Adding to the pressure, Hungary's government will attempt to control a widening budget deficit by raising taxes and regulated prices, including natural gas, electricity, drugs and public transportation. The budget gap will amount to 8.6% of gross domestic product this year, the EU's biggest, after a revised 8%. The original goal was 4.6%. Deficits for 2007 and 2008 will also be higher than the government's targets, as the government invests in highway construction to bring the road system up to western European standards, Finance Minister János Veres said last month.
The central bank raised its benchmark two-week deposit rate to 6.75% in July. By comparison, the Czech Republic's main rate is 2.25% and the rate shared by the 12 nations using the euro is 3%. Policy makers next meet on Aug. 29. The central bank said July 7 that the inflation rate may rise to between 6% and 7% next year from 3.2% to 3.4% this year. The government wants to keep inflation at less than 5.5% next year. In July, the rising cost of gasoline and services, including trash collection, local transport, car rentals and theater tickets, pushed inflation higher. Higher value-added taxes and utility bills in the months ahead will exacerbate the issue, said Radomir Jac, an emerging-markets strategist at PPF Asset Management in Prague. „It will be very interesting from September,” said Jac. ”The real story will come with changes in VAT and price deregulation.”
The central bank will publish an updated report on inflation Aug. 29. The government last month abandoned its quest to adopt the euro by 2010 because it will fail to meet EU targets. „There is no target date now, only a target, and that is to push the budget shortfall under the 3% threshold as soon as we can,” Economy Minister János Kóka said during a Budapest briefing July 27. (Bloomberg)