Hungarian inflation below 4% in January
It fell from 5.5% in December to 3.8%, the lowest rate of increase since February 2021, almost three years ago. Core inflation fell to 6.1% from 7.6% the previous month, while pensioner inflation was 3.9%. Prices rose 0.7% in a month after dropping 0.3% in December, according to the statistics office.
On an annual basis, the most significant price increases were in services, up by over 10%, spirits and tobacco by 8.1% and clothing by 6.2%. For food, the pace of price increases slowed to 3.6% compared to January last year. On a monthly basis, however, the 1.2% rise in food prices stood out and, in contrast to the recent period, the price of household energy rose by 0.9% due to the settlement of gas contracts. These were offset by the fact that clothing was more than 2% cheaper than in December.
Looking at a shorter price formation period, the picture is a little more mixed. The quarterly annualised core inflation rate came in at 4.2%, implying that price developments over the past three months do not yet imply price stability. Moreover, the indicator has risen slightly in the last three months. This suggests that repricing decisions have become slightly more intense. However, there is no need to over-explain this rise, as the beginning of the year is always a time of price increases. This is in principle filtered by seasonal adjustment, but there is still more uncertainty at this time. In any case, the indicator will be worth watching in the months ahead, since should retrospective pricing (based on last year's high average annual inflation) become dominant in the first quarter, the fall in inflation could stall.
Today's data is also interesting from a monetary policy perspective, as
it is the first time since February 2021 that the central bank's inflation target range has been reached.
The National Bank of Hungary (MNB) has set a band of 3% plus or minus 1% as the ideal, and this is the band within which the rate of price increases has now returned. In other words, the latest data may confirm expectations that the Monetary Council could accelerate the pace of interest rate cuts. Already in January, members had voted for a 100 basis point easing from the previous 75 basis points per month, but in the end they stayed on track by a "large majority". But with inflation again coming in lower than expected, the decision at the end of February looks even more exciting.
With the latest data, the Hungarian real interest rate in retrospect has risen to 6.2% the highest since March 2009.
As a result, the forint is more likely to react to the data by weakening as expectations of interest rate cuts may intensify. This can be seen immediately from the exchange rate reaction in the first minutes.
About the details
According to the KSH report, food prices rose by an average of 1.2% in one month compared to December 2023, mainly due to a 6.4% increase in the price of seasonal food (potatoes, fresh vegetables, fresh domestic and tropical fruit).
Excluding this group, food prices rose by 0.7% on average. Butter and butter spreads were 3.1% more expensive, cheese 1.6%, milk 1.2% more expensive, pork 1.1% more expensive, cooking oil 1.6% less expensive, sugar 1.3% less expensive, flour 1.2% less expensive and bread 0.7% less expensive. Household energy cost 0.9% more, including 1.7% more for piped gas and 1.3% more for firewood. Services rose by 0.5%, including 8.4% for motorway tolls, car rental and parking - mainly due to the increase in motorway tolls -, 4.8% for postal services, 2.5% for rent, 2.3% for vehicle repair and maintenance and 1.8% for housing repair and maintenance, due to the increase in tolls. Clothing was 2.1% cheaper due to end-of-season sales. Vehicle fuel prices fell by 0.5%.
Over a year, food prices rose by 3.6%, with the most significant increases for sugar (38.2%), soft drinks (14.6%), chocolate and cocoa (14.1%), snacks (12.7%) and pork (10.0%). Within this product group, the prices of flour fell by 19.0%, eggs by 17.8%, cheese by 15.6%, butter and butter cream by 13.8%, dry pasta by 13.2% and milk by 10.2%.
Household energy has become 11.3% cheaper, including 25.0% less for piped gas, 3.4% less for electricity and 2.0% more for firewood.
Services increased by 10.4%, including rent by 13.9%, vehicle repair and maintenance by 11.9%, tolls, car rental and parking by 11.3%, sports and museum tickets by 10.9%, holiday services by 10.2%, and travel to work and school by 21.7%.
Prices of alcoholic beverages and tobacco increased by 8.1%, including tobacco by 9.2%. The prices of pet food rose by 20.0%, washing products and cleaning materials by 11.1%, medicine and health products by 8.0% and personal care articles by 4.7%.
Prices of durable consumer goods fell by 1.4%, with used cars down by 9.9%, kitchen and other furniture down by 7.6%, heating and cooking equipment down by 3.7%, household furniture up by 2.6% and new cars up by 1.3%. Vehicle fuel became 11.9% cheaper.
Cover photo: Getty Images
