It is increasingly apparent that Hungary’s inflation is the steepest in the European Union. Although the official inflation indicators of the Baltic countries are higher than those of Hungary, EU data from the summer show that the core inflation indicator, which contains much less distorting effects, is the worst in Hungary. The inflationary pressure intensified by September, making the Hungarian headline inflation by far the highest in the EU.
The harmonized consumer price index of the three Baltic countries is the highest in the EU, according to the latest data published by Eurostat. This is primarily because they allow world market price changes to prevail in household energy and fuel much more strongly than in other countries, and the price shock of unprocessed food is very large. On the other hand, Hungary is already in fourth place, compared to the summer, having surpassed the Czech Republic and Bulgaria on the list.
Changes in household utility price regulations in Hungary are not responsible for the high Hungarian price index, since the increase in the price of household energy (electricity and heating) in August is not considered significant in a European comparison. One of the reasons for high inflation in Hungary is the rise in the prices of unprocessed food. In September, the statistics registered a price increase of over 40% on an annual basis, which is the highest in the European Union.
Since the increase in the price of unprocessed food will also spread to the processed food segment in the coming months, it cannot be hoped that Hungary will edge lower in the EU inflation list.
Hungary’s record high inflation came about despite the fact that the government ordered price limits on the prices of some staple food items. Some analysts argue that food price increases would be even higher without the government’s price freeze while others believe that the retail segment fully compensates for the losses incurred on these items by raising the prices of other products.
Eurostat publishes a filtered indicator that is very close to the concept of core inflation calculated by the Hungarian statistical office. This indicator takes energy and unprocessed food out of the basket before looking at price developments. The resulting data shows that Hungarian inflation is the highest in the entire EU, almost 3 percentage points higher than the second-ranked Lithuania, and more than two and a half times higher than the EU average.
This suggests that there are unique reasons behind Hungary’s high inflation numbers. The weak forint makes imports more expensive, and the government’s fiscal spending spree ahead of the elections boosted inflation from the demand side-
For this very reason, the need for monetary policy rigor and the strengthening of the exchange rate seem justified. The central bank is confident that the rate of price increase may reach its peak in the coming months and then decline from there.
Central bank to use all tools to fight inflation
Hungary's central bank is ready to use all tools at its disposal to restore price stability, Deputy Governor Barnabás Virág said this week. The National Bank of Hungary left its base rate unchanged at 13% last month after an emergency rate increase in mid-October to shore up the plunging forint, and pledged to offer its quick deposit tool at an 18% rate "as long as necessary.”
The NBH's decision last month to end its more than year-long rate-tightening cycle despite projecting a further rise in inflation next year triggered a plunge in the forint to all-time-lows against the euro and the dollar in early October. "It is important for everyone to understand that we will not tolerate developments jeopardising price stability," Virág said in an interview with daily newspaper Világgazdaság. The central banker added that while current inflation was very high, the level of the base rate was sufficient for the longer term. "The central bank will use all tools to reach price stability and preserve (financial) stability at all costs," Virág stressed.


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