Central Bank Forecasts Inflation to Climb

As a result of the war in the Middle East and the resulting surge in energy prices, the National Bank of Hungary (MNB) has significantly revised downward its outlook for the Hungarian economy. According to the latest forecasts, GDP growth will be much lower than previously expected, while inflation will accelerate noticeably. MNB projects that the rise in consumer prices will average 3.8% in 2026.

At its meeting this week, MNB’s Monetary Council reviewed the latest economic and financial developments and decided to leave unchanged on the following structure of central bank interest rates with effect from March 25, 2026: the central bank base rate at 6.25%, the overnight central bank deposit rate at 5.25% and the overnight collateralized rate at 5.25%.

As the Council put it in its forward guidance, “a careful and patient approach to monetary policy remains necessary due to inflation risks arising from geopolitical tensions and the uncertain financial market environment." Also, the Monetary Council is committed to the achievement of the inflation target in a sustainable manner, insisting that maintaining tight monetary conditions is warranted. The Council is constantly assessing the impact of incoming macroeconomic data and financial market developments on the inflation outlook, based on which it says it will take decisions on the level of the base rate in a cautious and data-driven manner.

A press release issued after the Council’s meeting states that in 2025 Q4, Hungary’s GDP rose by 0.8% and Hungary’s real economy is still characterized by duality. GDP growth is primarily supported by an expansion in household consumption, while investments and net exports hold it back. In January, retail sales continued to grow, while the volume of industrial production remained subdued. The tightness of the labor market is easing, whereas the unemployment rate still remains low in a historical comparison.

The Council expects economic activity to strengthen further this year; however, the geopolitical events of recent weeks have slowed down the pick-up in growth. Similarly to the previous year, the main driver of growth is expected to be household consumption in 2026. Due to rising real wages and the government’s income-increasing measures for households, consumption will expand over the entire forecast horizon. Surging energy prices slow down the growth of Hungary’s export markets as well. However, the capacity-increasing investment projects of recent years help the expansion of industrial exports. After a temporary decline this year, the current account surplus will be around 1% of GDP at the end of the forecast horizon, thanks primarily to the gradual increase in the trade balance. Domestic GDP may rise by 1.7% in 2026, 3.0% in 2027 and 2.9% in 2028, according to the forecast.

As for inflation, declined to 1.4% (with core inflation down to 2.1%) last month. Playing a significant role in the decline were January and February re-pricings being at one of the lowest levels observed in past decades. The lower numbers were also supported by the decrease in global food prices and the stronger forint’s disinflationary effect. In 2026 Q1, companies’ price expectations showed subdued dynamics overall. Households’ inflation expectations declined. However, favorable re-pricings at the start of the year and energy prices surging as a result of the Iranian conflict, have an opposing effect on inflation. The extension of price margins restrictions until the end of May is expected to result in prices increasing at a slower rate this year, while increasing at a higher rate in 2027 compared to the December forecast. The council forecasts that from March onwards, the rate of price increases will rise as a result of the pass-through of the higher energy prices. However, this will be temporarily mitigated by the impact of the price caps introduced for fuels. From 2026 Q3 onwards, inflation will rise above the tolerance band and is expected to return to the central bank target in a sustained manner in 2027 H2. On average, annual inflation will be 3.8% in 2026 and 3.7% in 2027.