Central bank director András Balatoni said the bank expects inflation to fall “moderately” in the coming months, then at a faster pace in the second half of the year. He added that inflation peaked in January, with both external and internal factors pointing to disinflation.
Presenting the National Bank of Hungary’s latest quarterly Inflation Report on Thursday, Balatoni said disinflation is expected to accelerate in the second half of the year and return to the central bank tolerance band in 2024. Analyzing the inflation processes of the first two months, Balatoni said the February data (25.4% year/year) were in line with expectations. The increase in food prices — and especially processed food prices — remains high both historically and by international comparison, but the pace of price increases fell for the second month in a row in February.
The central bank already published the key figures of the Report on Tuesday: it forecast annual average inflation between 15.0% and 19.5% in 2023, unchanged from the December projection. For 2024, the NBH raised its inflation forecast to 3.0-5.0% from its December projection of 2.3-4.5%. Among the external factors of disinflation, Balatoni listed falling energy and commodity prices as well as transportation costs. Declining household consumption has a “disciplining” effect on pricing behavior, which will help accelerate the disinflation process in the second half of the year, according to the central bank’s analysis. Companies’ inflation expectations have declined significantly in all sectors, especially in retail trade, Balatoni said. On the outlook for the real economy, he said the Hungarian economy continued to contract in the first quarter — both on a quarterly and an annual basis, but the economy could pick up from the middle of the year thanks to positive fundamentals and the high level of employment. The NBH cut its economic growth forecast to between 0% and 1.5% in 2023 from its earlier projection of 0.5-1.5%. For 2024 and 2025, the forecast remains unchanged at 3.5-4.5% and 3.0-4.0%, respectively. The central bank expects gross wages to grow at around 14% in the business sector, and the dynamic increase in company profits provides room for this, Balatoni said. Wage growth could slow to around 10% next year, he added. Fielding a question, Balatoni said they do not expect the food price caps to be phased out. Phasing these out could add 1%age point to inflation, but a lot depends on the behavior of retailers, he said.