Hungarian Inflation Ticks Up in May Despite Government Measures

Hungary’s inflation rate picked up in May for the first time in three months, highlighting the persistent challenge facing monetary policymakers even as headline figures suggest only modest price growth.

The Central Statistical Office reported an annual inflation rate of 4.4%, up from 4.2% in April and slightly above economists' expectations. On a monthly basis, prices rose 0.2%. While modest, the figures have rekindled concerns about the longer-term trajectory of inflation in Hungary.

Core inflation slowed to 4.8% from 5.0% in April, while food prices rose at an annual pace of 5.9%, up from the previous month. Food prices increased by 0.6% m/m, due to seasonal products and base effects. Household energy prices were also a key contributor, increasing by 0.8% in May, primarily due to higher gas consumption amid unusually cold weather. This weather-related impact is expected to fade in June.

Economists at ING Bank in Budapest warned that the recent slowdown in March and April may have been temporary. “Longer term, we expect higher inflation in the second half of the year,” ING said, revising its 2025 forecast to 4.5%, with core inflation likely to exceed even that level.

The inflation trend complicates the outlook for monetary policy. National Bank of Hungary Governor Mihály Varga ruled out interest rate cuts in the near term, saying last month that Hungary was not in a position to mirror the easing seen in Poland or the Czech Republic. The benchmark rate remains at 6.5%, where it has been held steady for eight months.

One of the central bank’s key concerns is the growing divergence between actual and expected inflation. According to a recent central bank report, the median household expects prices to rise by 9% over the next year — more than double the central bank’s 3% target, which comes with a tolerance band of plus or minus 1 percentage point.

Consumer prices are becoming a focal political issue as the country heads toward elections next year. Prime Minister Viktor Orbán’s government has responded with a series of interventions aimed at capping the prices of everyday goods — from food staples to toilet paper. While additional measures are being promised, analysts caution that such efforts may offer only short-term relief.

“We think Hungarian interest rates will remain on hold for an extended period,” ING noted. “High inflation expectations and global uncertainties are clouding the picture — and they’re the two key discussion points right now for the National Bank of Hungary.”