Hungary Faces Inflation Surge as Prices Rise Across Key Sectors

Hungary's inflation rate surged unexpectedly in January, driven by sharp increases in fuel, food, and service costs, posing fresh challenges for monetary policy. The latest data indicates mounting price pressures, with core inflation also worsening, raising concerns over the central bank’s ability to ease interest rates in the near future.

Official figures show that Hungary’s annual inflation rate climbed to 5.5% in January, surpassing analyst expectations and marking the fastest monthly price growth in two years. This exceeded the median analyst forecast of 4.8% and even topped the highest projection of 5.3% in a Reuters poll. Core inflation also spiked to 5.8%, well above expectations, reinforcing concerns that price pressures are broadening across the economy.

All major inflation indicators now sit well above the Hungarian central bank’s target range of 2% to 4%. Food prices increased by 6% on an annual basis, while services saw an 8.5% jump. Fuel prices also surged, rising 11.8% year-on-year. On a monthly basis, food prices climbed 1.9%, reflecting cost-of-living crisis levels, with dairy products, fruits, and vegetables driving the rise. Meanwhile, fuel prices increased by 2.7% in a single month, partly due to excise duty adjustments, adding further pressure to inflation.

“The inflation situation is deteriorating on all fronts, with rising price expectations limiting monetary policy flexibility,” economists at ING Bank in Budapest noted in a research report. The Hungarian central bank held its base rate at 6.5% last month, the highest in the European Union, citing risks of inflation volatility and market instability in emerging economies.

Hungary has struggled with persistently high inflation, recording the EU’s highest rate in 2023 at 17%. Between 2022 and 2024, the country also saw the steepest rise in food prices across the bloc, according to Eurostat data. Outgoing central bank rate-setter Gyula Pleschinger, who previously warned that January inflation could exceed 5%, stated that there would be little room for rate cuts throughout 2024, as inflationary pressures are expected to persist.

In response to the latest figures, Economy Minister Márton Nagy hinted at the potential return of price caps as a means to curb inflation ahead of the 2026 general election. “High food inflation is unacceptable, and the government is ready to use all available tools to protect families,” Nagy wrote in a Facebook post following the data release. He further stated that Prime Minister Viktor Orbán’s government would not rule out reintroducing mandatory price caps if necessary.

The Orbán administration has previously implemented price caps on essential goods, including fuel and selected food items. However, these measures led to fuel shortages and unintended price spikes, according to a central bank survey. As inflationary pressures persist, policymakers face mounting difficulties in balancing price stability with economic growth, leaving the direction of Hungary’s monetary policy uncertain in the months ahead.