HUNGARY: NBH Say Stronger HUF Suggests Lower Inflation This Year and Next

The NBH has released the full Inflation Report, which includes the projections which informed its interest rate decision earlier in the week. Highlights below:

• The extension of margin restrictions may reduce average inflation this year, while raising it next year. Via its gradual impact on consumer prices, the stronger exchange rate in recent months suggests lower inflation this year and next year, compared to our June forecast.
• Core inflation excluding indirect taxes, which reflects the underlying trends, is expected to be 4.4 percent in 2025, 3.9 percent in 2026 and 2.9 percent in 2027.
• Weaker harvests caused by colder spring weather and the continued rise in global food prices foreshadow higher price dynamics for unprocessed foods. At the same time, this is offset by the extension of margin restrictions. However, the impact of these measures is only temporary; accordingly, price increases for this product group may be higher next year than in our June forecast.
• The budgetary impact of the measures is expected to increase household net income by about 1.5 percent of GDP in 2026 compared to 2025, which is equivalent to 3.0 percent of household consumption, but at the same time, government interest expenditures to households will decrease significantly. The additional incomes are expected to lead to an increase in consumption.
• Wages in the private sector may rise by 8.5 percent this year, followed by nominal wage growth of 9.3 percent in 2026 and 9.4 percent in 2027. Looking at the national economy as a whole, wage growth may amount to 8.7 percent in 2025, 10.5 percent in 2026 and 6.8 percent in 2027.

Figure 1: Monthly evolution of the near-term inflation forecast (source: NBH)