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Bloomberg
Hungarian inflation accelerated to the fastest in 24 years, offering no reprieve for a central bank that’s raised interest rates by most in the EU.
Consumer prices rose 13.7% in July from a year earlier, exceeding all estimates in a Bloomberg survey. Core inflation, which strips out volatile commodity prices, was even higher at 16.7%, pointing to broad-based inflationary pressures across the economy. The Hungarian currency has been third-worst performing in emerging markets since Russia’s invasion of Ukraine in February, dropping more than 8% against the euro.
“The central bank has no choice but to continue its rate-hike cycle with decisive steps,†said Mariann Trippon, an economist at Intesa Sanpaolo’s CIB Bank in Budapest. She predicted that the base interest rate may rise to 13% by year-end from 10.75% now.
When it comes to prices, the worst is yet to come. While July inflation was dominated by food costs — the prices of bread and cheese soared more than 50% year-on-year — that’s likely to shift to energy in the coming months.
Prime Minister Viktor Orban capped lavish household energy subsidies from August, with consumers on the hook for a seven-fold price increase on above-average natural gas consumption. A price cap on motor fuel — which has made Hungarian gas stations the cheapest in the EU — are also being phased out gradually as the government tries to cut spending and deal with a potential energy crunch.
The moves may help push annual inflation to more than 20% in the autumn, according to CIB Bank’s Trippon.