Hungary’s inflation rate dropped to its lowest in almost a year as a recession hammered consumer demand, restraining price-growth.
(Bloomberg) — Hungary’s inflation rate dropped to its lowest in almost a year as a recession hammered consumer demand, restraining price-growth.
Consumer prices rose 17.6% from a year earlier in July, the statistics office said on Tuesday, the least since August of 2022. It was slightly below the 17.7% median estimate in a Bloomberg survey and compared with a 20.1% inflation rate in June. Prices rose 0.3% from the previous month.
“It’s dubious as a triumph, but still significant that the headline rate finally dipped below 20%,” said Peter Virovacz, an analyst at ING Bank Hungary. The main drivers were base effects and weak demand, he added.
Hungary’s economy contracted for a third consecutive quarter from January to March, as the European Union’s fastest price growth cut into households’ disposable income and the bloc’s highest borrowing costs suppressed investment. Disinflation may gather pace in the rest of the year and is projected to drop below 10% in October, Economic Development Minister Marton Nagy said in a statement.
Rate Cuts
The forint strengthened as much as 0.4% against the euro after the publication of the inflation data, leading gains in emerging markets. A separate release showed the trade surplus climbed to a record €1.5 billion ($1.6 billion) in June after imports fell 5% and exports surged 11% as part of a broader adjustment driven by the collapse of domestic demand.
The central bank has been cutting its key rate one percentage point each month since May, to 15% currently from a peak of 18%. Policymakers last month flagged that they would continue reducing rates even after the key facility aligns with the 13% benchmark in the autumn. At the same time, they ruled out delivering steeper monthly cuts.
The lower borrowing costs contributed to the forint’s retreat, which fell 4% in the previous three weeks, making it one of the worst-performing currencies globally in the period.
Household energy costs and food prices continued to boost inflation in July, rising an annual 36% and 23%, respectively. Fuel costs rose an annual 22%.
“I see newly rising fuel costs and the forint’s more volatile exchange rate acting to slow the pace of disinflation a bit,” said Zoltan Arokszallasi, an analyst at Budapest-based brokerage Equilor. “Nevertheless, we’ll see single-digit inflation by the end of autumn.”
–With assistance from Zselyke Csaky.
(Updates with government statement in fourth paragraph, forint and trade balance in fifth.)
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