Hungarian inflation rate declined to 25.4% in February, as electricity, gas and food prices registered the highest surge in annual terms. The article provides an overview of the country’s inflation trend, its causes and effects.
Inflation is a persistent increase in the general price level of goods and services in an economy over a period of time. The Hungarian economy has been experiencing high inflation rates since the beginning of the COVID-19 pandemic. According to the Central Statistics Office (KSH), the country’s headline inflation rate stood at 25.4% in February, down slightly from 25.7% in January.
Causes of Inflation in Hungary
The KSH attributed the decline in the inflation rate to lower electricity, gas, and food prices. These three categories saw the highest surge in annual terms. Food prices, for instance, rose by 43.3% year-on-year, while household energy prices jumped by 49% after the government curtailed utility bill subsidies last year. Consumer durables prices increased by 12.6%, with prices of new cars jumping 23.9%, while services prices rose by 11.6% in annual terms.
The National Bank of Hungary targets 3% headline inflation, with a tolerance band of one percentage point on either side. The bank’s target is consistent with the European Central Bank’s inflation target of below, but close to, 2%.
Effects of Inflation in Hungary
High inflation rates have significant economic implications. Firstly, they erode the purchasing power of consumers, reducing their standard of living. As prices rise, consumers are forced to pay more for goods and services, leaving them with less disposable income to spend on other needs.
Secondly, high inflation rates can reduce the competitiveness of a country’s exports, leading to a decline in foreign trade. As the cost of production increases, firms may be forced to raise the prices of their products, making them less attractive to foreign buyers.
Thirdly, high inflation rates can also lead to a rise in interest rates, making borrowing more expensive. This can discourage investment and slow down economic growth.
The Hungarian economy has been experiencing high inflation rates since the beginning of the COVID-19 pandemic. While the headline inflation rate declined slightly to 25.4% in February, the country’s core inflation rate, which excludes volatile food and energy prices, stood at 25.2%. The government has taken steps to address the root causes of inflation, such as reducing utility bill subsidies, but more needs to be done to bring the inflation rate within the target range of the National Bank of Hungary. The current high inflation rate has significant economic implications for the country, and policymakers need to adopt appropriate measures to mitigate its effects.