Hungarian inflation slowed more than expected in May as the country’s recession limited the room for further price increases across the economy.
(Bloomberg) — Hungarian inflation slowed more than expected in May as the country’s recession limited the room for further price increases across the economy.
The annual inflation rate dropped for a fourth month to 21.5%, still by far the fastest pace in the European Union, from 24% in April, the Budapest-based statistics office said on Thursday. That compares with the 22.3% median estimate in a Bloomberg survey. Prices fell by 0.4% from April, the first monthly decline since 2020.
This week, Hungary reported a sharp drop in industrial output and a double-digit decline in retail sales, underpinning forecasts for a continuing recession into the second quarter. The upshot may be that coupled with base effects, inflation may decline more rapidly in the rest of the year.
“Today’s surprise data makes it all but certain that inflation will be in the single-digit by year-end”, said ING Groep NV economist Peter Virovacz. He also cut his average inflation rate forecast for this year to 18% from 19%.
Government bond yields declined after the data, with the 3-year yield dropping 10 basis points to 9.20%. The forint was unchanged at 368.75 per euro, close to a 14-month high reached earlier this week.
Fuel prices declined 6.6% in May from April, while household energy costs fell 3%. Services and food prices continued to increase on a monthly basis, according to the statistics office.
Last month, Hungary’s central bank delivered the first key interest rate cut since raising it to an EU-high 18% in October to stem currency losses. Policymakers, who reduced the overnight rate to 17%, said they would continue with “gradual” cuts while ensuring that the key rate exceeded inflation by year-end.
The driver of the monetary easing, according to the central bank, was improving risk perception, particularly as seen in the exchange rate.
(Updates chart and economist comment, adds bond yield in fifth paragraph.)
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