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Járai says Hungarian inflation rate may rise above 10%

Hungary's annual inflation rate, already the highest in more than two years, may exceed 10% for the first time since 2001, central bank President Zsigmond Járai said.

„The consequence” of government austerity measures „is very rapidly increasing inflation,” Járai said during a conference in Budapest today. „My worry is that we'll have double-digit inflation for a month. We don't have exact calculations for that, but surely, our main challenge is to cool inflation expectations.”

Hungary's inflation rate has almost tripled in the past six months as Prime Minister Ferenc Gyurcsány’s government raised the value-added tax rate and boosted utility bills to raise money to narrow the state budget deficit. The effects are still lingering as consumers received higher heating bills in December and food producers relayed higher costs to buyers. Inflation was 6.5% in December, the fastest since September 2004, compared with 6.4% in November. The last time the rate rose to above 10% was in June 2001.

The annual average rate is likely to be 6.5% this year and 3.9% in 2008, according to a survey of economists this month. The forint traded at 251.65 per euro at 10:56 a.m. in Budapest, compared with 251.67 late yesterday. Accelerating inflation has forced the central bank to raise its benchmark two-week deposit rate five times last year. Policy makers have held the rate at 8%, the European Union's second-highest behind Romania, for the past two months and are expected to leave the rate unchanged on January 22. (Bloomberg)