Inflation in Hungary picked up in October, but the increase was smaller than anticipated, although a weakening currency may constrain the central bank’s ability to lower interest rates further. 

According to the Budapest-based statistics office, consumer prices rose by 3.2% year-on-year, after hitting the central bank's 3% target in September. This was below the 3.5% average forecast in a Bloomberg survey. On a monthly basis, prices increased by 0.1%.  

Although the steady rise in price growth aligns with the central bank's projections, the slower pace could raise expectations that inflation may not rebound as sharply as policymakers have anticipated.   

The National Bank of Hungary's most recent forecast predicted inflation would exceed 4% by the end of the year, as the base effects of last year’s price surge begin to dissipate.  

Aside from inflation, the Hungarian Forint is the more pressing concern for rate-setters. The weak exchange rate has already led policymakers to abandon plans for monetary easing, despite the economy being in a recession. 

Since the beginning of October, the currency has fallen 3% against the Euro, marking the second-worst performance among 23 emerging-market currencies, after the Chilean Peso.   

On Monday, it dropped nearly 0.9% on another volatile trading day, falling to more than 410 per Euro, near a two-year low, according to a Bloomberg news report. 

The weak currency, which policymakers have noted now has a greater negative impact on inflation than before, led central bank Deputy Governor Barnabas Virág to signal a “sustained pause” in rate cuts last month. 

With a benchmark interest rate of 6.5%, Hungary shares the highest rate in the European Union, alongside Romania.

The central bank aims for a 3% inflation rate in the medium term, with a tolerance band of 1 percentage point above or below that target.