Hungarian Prices Jump More Than Expected, Backing Rate Hikes

(Bloomberg) -- Hungarian inflation resumed its upward surge, accelerating more than economists estimated to bolster bets that the European Union’s most-aggressive spate of interest-rate increases will continue.

Consumer prices advanced 4.9% from a year ago in August after their growth dipped to 4.6% in July, data released Wednesday showed. The central bank targets medium-term inflation of 3%, tolerating temporary swings of one percentage point in each direction.

Soaring prices as pandemic lockdowns end and consumer demand rebounds have prompted Hungary and the nearby Czech Republic to lead the EU in raising benchmark borrowing costs. Hungary has increased benchmark borrowing costs by 30 basis points in each of the past three months, to 1.5%.

• “There’s little doubt that today’s inflation data won’t change the direction of monetary policy,” said Peter Virovacz, an economist at ING Group in Budapest. Rate hikes may continue this month and the central bank may raise its benchmark rate by as much as 1 percentage point to 2.5% this year, he said
• August’s jump in inflation was driven by surges in fuel, tobacco and construction costs. It wasn’t just the headline the number that rose: core inflation rate advanced to 3.6% from a year ago, compared with 3.3% in July
• New inflation forecasts that will be key for the direction of monetary policy are due on Sept. 21. Price-growth may exceed 5% in October or November before slowing in a more sustained manner, central bank Deputy Governor Barnabas Virag said last month. He’s said rates should rise until inflation is on track to hit the target
• Derivatives investors already see a deceleration in monetary tightening, with forward-rate agreements signaling the three-month Budapest interbank rate, which is already 10 basis points higher than the benchmark, rising an additional 49 basis points in the rest of the year

©2021 Bloomberg L.P.