The building of the NBH in Budapest – Photo: wikimedia

Central bank director: Strong disinflationary trend continues

The strong disinflationary trend continues, with the consumer price index set to fall between 7 and 8 percent by the end of the year, and disinflation will continue in 2024, Andras Balatoni, a central bank director, said on Thursday.

At a press conference presenting the National Bank of Hungary’s September Inflation Report, Balatoni said the strict monetary policy, falling global commodity prices, restrained consumption and government measures to boost market competition were having a broadening disinflationary effect. This year, annual average inflation will be around 17.9 percent, with disinflation slowing from 2024 due to tax measures and factors passing out of the base period. The bank sees average annual inflation between 4 and 6 percent next year, with CPI returning to the central bank’s tolerance band in 2025, Balatoni said.

Tax measures will increase inflation by 0.8-1.1 percentage points in 2024, he said. Compared to the previous forecast, the increase in the new inflation forecast is mainly due to the higher vehicle fuel prices, he added.

The central bank sees the performance of the economy increasing by 3.0-4.0 percent both next year and in 2025, Balatoni said. This year’s low economic performance is primarily due to high inflation and the curbing of state investments. Falling real wages and cautious consumer and investor decisions cause a decrease in domestic demand, he added. Net exports and the better performance of agriculture will make a positive contribution to GDP growth, he said.

Corporate lending continues to grow, albeit at a slower pace. Retail lending is expected to pick up in the second half of the year. The significantly improving foreign trade balance will bring the current account deficit down to below 1 percent of GDP this year, and the current account balance will turn into a surplus from 2024.

Balatoni said wage growth will slow down in the second half of the year due to stronger disinflation and the resulting real wage growth. The central bank sees average wage growth between 15.6 percent and 15.9 percent in the private sector this year.

On the risks surrounding the forecast, Balatoni said an important downside risk is the slowing global economy, there is also the withdrawal of capital from emerging markets, as well as the prolonged recovery of consumption. The monetary council identified a greater proportion of upside risks to inflation and downside risks to GDP, he said.

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