Underlying inflation trends cause for concern in Hungary

Consumer prices jumped 6.5% in October 2021, the highest reading in more than nine years. Inflation rose from 5.5% year on year in September, and although analysts polled by Portfolio agreed that the Oct print will start with the digit '6', estimates ranged between 6.0% and 6.3%, i.e. the actual figure beat the market's call.

The central bank’s measures of underlying inflation developments, which capture persistent inflationary trends, rose relative to the previous month: the price index for demand-sensitive products rose 4.7%, the same as tax-filtered inflation, while the inflation of sticky-price products and services was 5.5%.

Fuel prices continued to make a significant contribution of 1.9 percentage points to inflation, but inflation in Hungary cannot be attributed to a single factor, as the graph below shows. Monthly price changes in the basket calculated excluding fuel prices amounted to 0.7%, which is above the levels seen in October in recent years and previous months.

Prices of durable consumer goods, which typically rose slowly, have gained momentum in October as well, as seen below, and the annual inflation of industrial goods was outstanding in October.

Breaking down inflation, we can see that several factors have combined to boost prices. Price pressure from demand-sensitive products is growing, while fuel and energy prices have also contributed more to the increase, and the effect of the food price shock and the price changes of regulated products can also be seen.

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