Economy 18 December 2025, 10:26am

Hungarian central bank projects much lower inflation for 2026

Portfolio

The MNB expects inflation to be much lower next year than in their previous September Inflaton Report. This is partly due to the end of the cycle of global food price inflation. Service providers have largely adjusted to the price caps already, so the effect on prices of removing them may be smaller than previously expected.

On Thursday, the central bank (MNB) will present its quarterly economic overview, the Inflation Report. Following the recent weakening of the forint, attention will be focused on the central bank to see if it will offer any guidance on this matter. Today's press conference follows Tuesday's interest rate decision, when the Monetary Council kept the base rate unchanged at 6.5%. However, the communication has changed, and the previously almost certain longer-term stance has been called into question.

Regarding the expected price increase in 2026, András Balatoni, the MNB's director of economic forecasting and analysis, said:

The underlying inflation process will be characterised by more moderate inflationary trends than we had previously expected. This 3.2% is a significant revision.

(Previously, they had forecast 3.8% for 2026.) "This is a very important message from us: next year's price increases and inflation may be much lower than indicated in our previous forecast." However, there are short-term risks, such as the timing and method of repricing at the beginning of next year, and the phasing out of margin caps.

Next year, economic output is expected to grow by 2.4%, primarily driven by consumption thanks to rising real wages and government transfers. It is expected that 50–60% of the latter will be spent by households. However, exports and investments are more likely to contribute significantly to economic growth in the second half of the year or from 2027 onwards. Expectations for growth in both the US and the eurozone have improved for next year, making the outlook for Hungary's external markets more favourable.

The central bank expects the budget deficit to be around 4.7-5% of GDP this year and 4.7-5.2% next year. (The government expects 5% for both years.)

Better-than-expected inflationary developments almost everywhere

A significant change has occurred in the food sector: the cycle of global food price increases lasted 18 months from March 2024, resulting in a 18% price increase.

From September onwards, the price increase came to an end and prices began to fall significantly.

For example, the price of sugar dropped by 30% in November compared to the previous year, and negative changes were also seen in the prices of dairy products and grain. The price of German ZMP slaughter pigs has fallen by a quarter since June, which is interesting given that domestic pricing is also based on this. There has also been a significant decline in prices in the milk and dairy products market, as evidenced by stock market prices for products such as butter and milk. He emphasised that there had been a significant change in the cost factors that had driven food price increases in previous months.

There have also been favourable developments in the energy sector, with Brent oil and TTF gas prices falling — the latter by 10–14%.

Shorter-term (3-month/3-month) inflation indicators fluctuate around 3%. Incoming repricing patterns indicate restrained pricing activity. However, it is also important to consider the price increases that companies are expecting, as these are a good predictor of short-term price changes. The trends here are favourable, too.

Nevertheless, inflation expectations among the general public remain high. The public still needs to be convinced. However, in their case, it is typical that they base their future expectations on past price increases.

The appreciation of the forint exchange rate is an important disinflationary factor which may contribute to lower inflation next year. Price indices for imported goods and the manufacturing industry have moderated significantly, too.

Margin caps

"We have seen the commercial sector adapt to this new situation in many ways recently," Balatoni said, discussing the impact of price caps. When introduced, these measures reduced inflation by 1.2%, but the longer they remain in place, the more economic actors adapt.

This suggests that the price-boosting effect may be smaller when they are phased out.

He had this to say about how the adjustment might have happened:

global food prices have fallen;
the HUF exchange rate has strengthened;
retail sales tax bands have risen, which could mean a reduction of up to HUF 50 billion in the sector's tax burden;
efficiency improvements in the sector may also begin.

However, there is still considerable uncertainty surrounding margin caps. The central bank has discussed this issue with several market participants and received different responses.

When asked about the removal of margin caps, Balatoni said that it would be an overestimation to consider the technical impact at the time of introduction when removing them.

Although the inflation forecast for 2027 has increased slightly, two-thirds of this increase is due to the base effect. Therefore, it is not necessarily worth basing monetary policy on this.

In 2026, large investments could contribute 0.6% to GDP.

The primary balance deficit is expected to remain at around 1% of GDP next year. This means that the government may spend more than it earns in revenue next year, excluding interest expenses.

He did not comment on the recent weakening of the forint exchange rate, since the long-term development of the exchange rate is more relevant for inflation forecasts. Therefore, rather than focusing on current volatility, the key question will be how the trend develops.