Fuel, tobacco price increases lift November inflation to 7.4 percent

Consumer prices in Hungary grew by an annual 7.4 percent in November, after hitting 6.5 percent in October, the Central Statistical Office (KSH) said on Wednesday.

Prices in the category of goods that includes vehicle fuel increased by an annual 15.1 percent, as vehicle fuel prices jumped 37.7 percent, spirits and tobacco prices rose by 11 percent, lifted by a 16.8 percent increase in tobacco prices.

Food prices grew by 6 percent, while household energy prices edged 0.9 percent higher. Consumer durables increased by 6.6 percent, clothing prices by 1.8 percent, and services by 4.6 percent.

Harmonised for better comparison with other European Union member states, CPI was 7.5 percent.

Core inflation, which excludes volatile food and fuel prices, was 5.3 percent.

Month on month, inflation notched up 0.7 percent.

Inflation is at the highest level in years and well beyond the Hungarian central bank’s 2-4 percent tolerance band.

Analysts told MTI said that inflation may have reached its peak in November, though the process of curbing it would take a long time.

ING Bank’s Peter Virovacz said higher prices were seen in 129 out of 140 product groups monitored by KSH, and he noted the “extremely rapid” rise in fuel prices and service charges as factors driving inflation. With sustained supply-demand mismatches, the situation was likely to endure in the next few months, he added. It was “almost certain”, Virovacz said, that inflation would remain above 7 percent in December and “well above 6 percent” in the first quarter of 2022. The base rate, he added, was likely to be at least 4.25 percent by mid-year.

Gergely Suppan of Takarekbank said the central bank may need to speed up its cycle of rate hikes to combat secondary effects of higher commodity prices, a boom in demand amid the economy emerging from the pandemic, as well as a jump in wages due to the labour shortage. The government’s cap on fuel prices did not show up in the November data, he noted, adding that the cap may reduce inflation in the next few months to a small degree, though soaring gas prices could have “unforeseeable” consequences. Takarekbank’s has changed its inflation forecast from 5 percent to 5.1 percent this year, and from 4.7 percent to 5 percent in 2022 with upward risks, Suppan said.

K and H Bank’s David Nemeth said that inflation could reach 5 percent for the full year and 4.8 percent next year. By the end of 2022, annual inflation could slow to 3.5 percent, he said.

Gabor Regos of Szazadveg Economic Research said that higher fuel prices accounted for over 2 percentage points of the current inflation figure, adding that putting a cap on fuels could somewhat slow down inflation in December. External factors such as a shortage of commodities contributed to higher inflation, though internal causes such as high demand and a weak forint were also dominant factors. He said that he expected further monetary tightening but “not at a faster pace” than before.

Erste Bank analyst Janos Nagy said meeting the government’s inflation target “could take longer than previously expected”. Higher energy prices do not impact retail utility prices yet, but “the business sector is not yet protected” and this may drive up consumer prices in the end. He noted that several sectors such as food production and construction projected price hikes of at least 10-20 percent, adding that “an expansive fiscal policy in the next few months” also posed “risks for price dynamics”.

Leave a Reply