2024 Likely to Be a Year of Stagnation

The year 2023 saw inflation peak for more than a quarter of a century and then fall sharply in the second half of the year. The hard part is yet to come, however, as disinflation could slow significantly in 2024, so there is a real risk that price rises could still be stuck at significantly higher levels than in previous years, the financial website portfolio.hu says in its analysis.

Hungarian inflation peaked at 25.7% at the beginning of 2023, the highest level since 1996. The rate of increase then fell to 7.9% in November, and experts expect it to approach 6% in December.

It is probably unprecedented for inflation to fall so much in such a short period of time. This is partly due to the global inflation spike of the past two years, and partly to the Hungarian specificities of the trend. There are two main reasons for the rapid fall in inflation:

The base effect, which means that last year's large price shocks were slowly phased out of the one-year observation period, so that – in the absence of similar shocks – the annual rate of price increases was reduced by the fall in consumption, which narrowed the price-setting scope of retailers and service providers.

In other words, 2023 was both a year of record-high inflation and record-fast disinflation. 2024 is likely to be a year of stagnation, according to the analysis.

At the very least, experts expect that, to a large extent as the base effect gradually fades out, the fall in inflation could be much smaller next year. In other words, one of the two important factors mentioned above could almost completely fade out next year and the other could see a major turnaround. Indeed, an agreement has been reached to raise the minimum wage and the guaranteed minimum wage by 10-15%, which could mean positive real wages again and thus boost consumption.

Analysts say that the beginning of the year will be worth paying particular attention to, both because of the usual repricing and because of the government's actions. In January alone, excise duty on fuel will rise by more than 40 forints, which could have a clear impact on inflation. In addition, the so-called extended producer responsibility, which in practice could mean a deposit charge on plastic bottles, could also indirectly feed through to consumer prices. As regards the latter measure, the date of its introduction is still in question, as there have already been rumors that its entry into force would be postponed from the originally planned January.

This means that, in a worst-case scenario, we could see inflation rates rise again in January-February, after the December figure of around 6%. The question is exactly what impact these tax changes and wage increases will have on prices. In Portfolio's latest analyst survey, experts forecast an average inflation rate of 5.2% by December 2024, which would be just below the 2023 year-end figure. The picture is different for the annual average, as the sharp rise seen at the beginning of this year has pushed up the average to around 17.7%, while in 2024 the average rate of increase in consumer prices could fall to around 5.4%.