Headline inflation in Hungary eased for the second consecutive month in March yet remained over 25% and close to over 20-year highs.
The country’s central bank has the highest base interest rate in the European Union at 13%, as well as one of the strongest inflation rates, which has weakened consumer demand and tipped the economy into a technical recession.
However, Hungary’s central bank is relying on a slowdown in inflation in 2023 and has decided against hiking rates, even as the European Central Bank tightens.
The ease in inflation last month was less than forecast as the year-on-year inflation rate declined to 25.2%, compared to expectations of a fall to 24.7%, Reuters reports.
The statistics office said core inflation rose to 25.7%, also resisting expectations.
“The core inflation reading shows there are serious structural problems with Hungarian inflation,” said ING analyst in Budapest, Peter Virovacz.
He added that the increase in processed food prices and the 13% annual rise in service prices were reasons for concern.
“If someone had any bold thoughts about rate cuts any time soon, we can forget that now,” he said.
At the end of last month, the deputy governor of the central bank, Barnabas Virag said inflation would ease slowly within the next few months before a considerable fall in the second half of the year, the Reuters report adds.
The Hungarian National Bank forecasts average inflation to decline to between 15.0% and 19.5% this year before falling to between 3.0% and 5.0% in 2024.
Markets have been betting on rate cuts in 2023, whilst Hungary’s government has urged for a loosening of policy to aid the economy. Yet Virag stated the base should be in place for a lengthy period.
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