Inflation spikes in Hungary, but annual goal reachable

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Hungarian inflation was recorded at 3.4 percent year-on-year in July, mainly due to fuel and tobacco price hikes but the National Bank’s (MNB) target of keeping it under three percent remains feasible.

According to data released by the Central Statistics Office (KSH), the year-on-year rise in fuel prices was 17.8 percent while tobacco prices rose by 7.5 percent. Food prices were up by 3.6 percent and household energy by 1.5 percent. The most significant price drop was in used cars, whose price fell by 8.9 percent.

Takarékbank analyst Gergely Suppán said the effect of fuel price rises was magnified by the fact that while last July fuel prices were falling, this year they have been rising. He added that due to a rising comparison base the inflationary effect of fuel prices will gradually decrease in the remaining part of the year and that, coupled with the selective VAT reductions that came into effect on January 1st will likely be enough to keep inflation within the MNB’s target. He expected annual inflation for 2018 to be 2.7 percent. This also means that in the medium term the MNB would probably stay the current monetary policy course and leave interest rates unchanged.

ING Bank lead macroeconomic analyst Péter Virovácz also said that seeing how data is in line with the MNB forecast and that both crude prices and the EUR/HUF exchange rate seem to be stabilizing, the central bank will not change is current loose monetary policy. His full-year forecast is 2.8 percent. 

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