Hungary's Inflation Situation

By Gergely Szakacs

BUDAPEST (Reuters) – Data suggests Hungary has overcome its inflation crisis, according to the economy minister, Marton Nagy, who spoke on Wednesday. Hungary reported the highest rate of price growth in the European Union last year, but inflation is now slowing towards the central bank's target.

Nagy indicated that Prime Minister Viktor Orban's cabinet will continue to monitor inflation closely while also prioritizing economic growth, despite a weaker-than-expected recovery from last year's inflation-led downturn.

These comments contradict the National Bank of Hungary's (NBH) warning last month, advising against prematurely declaring victory over inflation and advocating for a cautious monetary policy.

Nagy stated, "While many raise questions about our statements that we have managed to push inflation to the ground and it will stay there, this is looking more and more like a certainty based on the latest results and data," during a business conference.

Nagy also suggested that favorable inflation trends likely continued in September. Economists polled by Reuters forecasted an annual inflation rate of 3.1% last month, with the NBH targeting a 3% inflation rate and allowing a one percentage point tolerance.

The NBH has reduced borrowing costs by a total of 1,150 basis points in the current cycle, emphasizing the need for a careful and patient policy approach. They cautioned against overreacting to rate easing by the U.S. Federal Reserve.

Furthermore, the bank projected a rebound in core inflation to around 5% by the end of 2024, noting that its preferred measure of underlying price trends could still exceed 3% next year.

The forint has been struggling, being central Europe's worst-performing currency, having lost more than 4% against the euro this year. This week, it reached its weakest level against the euro since the NBH began cutting rates in May 2023.