Consumer prices in Hungary rose 12.2% year-on-year (chart) in September, slowing from 16.6% in the previous month from a high base and on the back of lower energy and food prices, the Central Statistics Office (KSH) said in a monthly release on October 10. The headline data came in slightly below forecasts, but analysts predicted that inflationary pressures remain strong, and the central bank needs to remain cautious in easing monetary policy.
On a monthly basis, prices edged up 0.4%, but food prices fell 0.2% and fuel and household energy prices grew more than 1%.
Core inflation, which filters out volatile food and energy prices, decelerated from 15.2% to 13.1% last month.
Hungary’s CPI fell for the eighth month in a row after peaking at 25.7% in January, but it remained the highest in the EU.
Annualised food inflation came down from 30% in June to 19.2% in August and fell further to 15% in September, according to data from KSH. The government attributed the decline to mandatory discounts that apply only to the largest multinational retailers, as well as the online price-monitoring platform from July, which also targets foreign companies.
In annual terms, consumer durables increased by 1.5% and of services grew by 13.6%.
Prices in the category of goods that include vehicle fuel rose 19.9%. Motor fuel prices, which were capped for households until early December, increased by 35.4%.
The Economic Development Ministry in a statement said that oil and gas group MOL has pledged to keep fuel prices at "competitive levels in regional comparison" at a meeting with other industry insiders late last month. Since then, one litre of 95-octane fuel fell from HUF660 (€1.7) to HUF610.
The prices of regulated products and services, which fell on the base effect of an increase in household gas and electricity prices, contributed 2.6pp to the 4.2pp drop in the headline CPI from August to September, while processed food prices accounted for 0.7pp of the decline, the Hungarian Central Bank (MNB) said in a monthly analysis following the release of the KSH data.
Inflation is slowing on the effects of tight monetary policy, government measures to spur competition, subdued demand and a "significantly lower" external cost environment, it added.
According to forecasts by the government and the MNB, inflation is set to reach single digits by November.
Revised data from the central bank show that inflation will average 16.5-18.5% in 2023 compared to its June forecast of 17.6-18.1%. The MNB also revised its 2024 forecast from 3.5-5.5% to 4.0-6.0% last month, and it left the 2024 target unchanged at 2.5-3.5%.
The fresh inflation data was in line with analysts' expectations and that of the central bank.
The MNB will hold its next rate-setting session on October 24 and the question is whether policymakers will continue with 100bp rate cuts as in the previous five months or slow down the pace of monetary easing as signalled by MNB deputy Barnabas Virag at the last session when the base rate converged with the overnight deposit rate and the one-day quick deposits were phased out of the monetary policy toolkit.
At the press conference after the meeting, Virag said the MNB does not operate in an "autopilot mode" and decisions will be made assessing risks and incoming macroeconomic data with a "step-by-step, cautious approach".
In recent weeks, calls from government officials on central bank policymakers to speed up rate cuts intensified, albeit they stressed the importance of MNB’s independence in setting monetary policy.
The government clearly favours growth over inflation as they claim that bringing down high borrowing costs, which restrain retail and corporate credit markets, is essential to boosting lending and economic growth. By offering real interest to investors, the MNB is slowing down growth, Economic Development Minister Marton Nagy said earlier.
On Tuesday, after the release of the KSH data, Nagy tried to soothe tensions between the government and the central bank over who is to blame for the EU’s highest inflation rate.
He named a number of factors outside the scope of the central bank, such as the energy crisis, economic shock due to the war and the devaluation of the forint that led to inflation spiralling out of control, but he also mentioned the high profit of companies in the wake of the energy crisis.
President of the competition watchdog GVH said that financial data between Q4 2023 and Q1 2023 showed that profits surged in a number of sectors, including energy, banking, logistics, defence and the pharmaceutical sector.
Viktor Orban has also blamed multinational retailers of racketeering, while companies in the sector say they were forced to pass on higher input prices to consumers, let alone the windfall taxes and other government measures.
MNB governor Gyorgy Matolcsy on a number of occasions criticised the cabinet’s procyclical fiscal policy that offset the impact of MNB’s monetary tightening and said that the price caps have pushed up inflation by 3-4pp.
Prime Minister Viktor weighed in favour of his ministers when he said that the MNB was unable to cope with inflation, so the government had to take over some of its tasks, referring to the mandatory discounts and the online price monitoring platform.