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Hungary's inflation rate rose in February on gas, medicines

Hungary's inflation rate rose to the highest in almost six years in February because of higher prices of regulated items including natural gas and medicines.

The annual rate reached 8.8%, the highest since July 2001, compared with 7.8% in January and an 8.7% median forecast of 13 economists in a Bloomberg survey. Prices rose 1.2% from January, while core inflation was 0.3% for the month and 5.8% for the year. The inflation rate has almost quadrupled since April as Prime Minister Ferenc Gyurcsány’s government raised the value-added tax rate and drove up utility bills.

More state-regulated prices rose last month and inflation is set to accelerate further. „There were quite a few measures for February,” said Borbála Mináry of the statistical office's consumer price department. „The natural gas price alone has a very large weight and we accounted for the entire increase here. There are also a few items left for March.”

The forint weakened to 249.46 per euro by 9:01 a.m. in Budapest from 249.08 late yesterday, which was a 16-month high. The price of household energy rose 6.5% in February, including a 22.5% jump in the cost of natural gas. Drugs cost 8% more than in January, while the introduction of charges for doctors' visits boosted the cost of health services by 8.7%.

 

The price index is probably nearing a peak before starting to decline in the second half, economists said. That may persuade the central bank to lower the benchmark two week deposit rate from 8%, the highest level in the European Union, where it has stood since October. The bank may cut the rate in June or July for the first time since September 2005, the government's economic strategy research institute said on March 8.

The reduction may come even sooner, said János Samu, an economist at Concorde Securities in Budapest, who expects „a bit of an increase in inflation this month, then it will dwindle until September, when there could be a more substantial decline.” Power pricing rising 5% will increase the March index by 0.2%age points, while half of the doctor's visit charges will also be accounted for the month, adding a further 0.1%, Mináry said. Higher fuel and district heating costs are also likely to raise the figure, she added.

The central bank expects the annual inflation rate to average 7.4% this year, it said in a report on Feb. 26. That figure was raised from an earlier 6.9% forecast. Accelerating inflation forced the bank to raise the benchmark interest rate five times last year, from 6% to 8%. The bank now focuses on 2008 inflation and on Feb. 26 lowered its forecast for next year's average consumer price index to 3.4% from a 4.1% estimate in November, expecting government austerity measures to dampen domestic demand.

 

András Simor, who took over as central bank president on March 5, has pledged to continue battling inflation as his main focus and backed the current inflation targeting system. „I support the inflation-targeting system,” he said during a hearing before parliamentary committees on February 26.

„Low inflation and price stability helps boost economic growth and the country's competitiveness.” The bank also expects austerity measures to yield results faster than it previously predicted as the forint's strength curbs the price of imported products and cheaper crude oil holds down fuel prices. (Bloomberg)