The prospects for Hungarian economic and monetary policy will also be discussed at the Budapest Economic Forum conference on October 8th.
Hungarian inflation has been European champion for two months in a row
According to Eurostat data from last week, Hungary had the highest inflation in Europe in August, taking us first on the list after July.
According to the Eurostat office, prices in the EU rose by 0.4% yoy in August, while in the euro area they fell sharply by 0.2%. It also shows that inflation is currently characterized by a strong duality on the continent:
- Prices are influenced by the fact that in some areas the coronavirus crisis has caused supply shortages and where the shock is subsiding, the surge in demand is also a cost
- On the other hand, inflation has been very low in many countries for many years (for example in the euro area, it is consistently below target) and even if the central bank is eased considerably
In Hungary, inflation rose unexpectedly in July when the annual rate of inflation rose to 3.8% from 2.9% in the previous month. At the time, analysts had anticipated 3.2 to 3.3 percent ahead of time, which means the price hike had far exceeded expectations. The background of the increase can already be derived from the CSO data:
- In July, seasonal food prices rose by 3.3% month-on-month from the usual decline in July of previous years, and the non-seasonal price change was caused by below average supply due to adverse weather.
- The excise tax on tobacco products increased from July 1, causing the price of the product group to increase by 1.4%.
- Services became more expensive by 1.4%, of which, as a result of the abolition of free public parking, tolls, rental cars and parking fees increased by 31.1% and those for holiday services increased by 7.6%.
- Vehicle fuels cost 8.1% more due to rising oil prices and excise taxes.
Nowhere have food prices gone that far
In addition to the record price hike two months ago, we examined some of Eurostat’s sub-indices for different product lines to find out why Hungarian inflation rose to the top of Europe. The Hungarian data for the first group of products are excellent: food and soft drinks prices rose 7.9% yoy in August. We are far from the line in Europe. The second largest is the price increase in Romania of 5.6%. Incidentally, the trends on the continent show an east-west border, with the four highest inflation rates in Eastern European countries.
It is also worth checking when Hungarian food inflation began to rise faster. Last December, the value of 5.7% was even higher in Poland and the Czech Republic. At the same time, in recent years there has also been a more sustainable trend in Eastern Europe according to which
Food prices in our region are rising faster.
In Hungary, the price of seasonal food rose by more than 20%, which at 11.4% in the second Czech Republic is significantly higher than in other European countries. A similar observation can be seen in raw food, the price of which rose by 13.4 percent in Hungary, while the rate of increase did not exceed 7% anywhere else. For processed food, the rate of price increase was lower in Hungary, but at 6% it is still the highest in Europe.
Even more detailed data from Eurostat shows that fruit in food became more expensive and prices rose by almost 40% within one year. The second Czech Republic also showed only 22.7% there.
In the other product groups, the Hungarian price increase is not that outstanding, but we are in the first half of the European list in all areas. For example, alcoholic beverages and tobacco showed only the fifth largest annual price increase despite rising excise taxes.
Previously there were opinions that the weak forint is already visible in Hungarian prices. Since the beginning of the year, the Hungarian currency has weakened by almost 10% against the euro. According to Eurostat, however, this is hardly reflected in the inflation of the most affected product groups for the time being. The weakening of the currency should traditionally be reflected in imported products, but we are in the middle of a rise in the price of clothing, for example.
For furniture and household appliances, the Hungarian price increase was behind the Lithuanians and Czechs on the podium, which can also be described as a classic imported product. From these two categories (clothing, household appliances) prices appear to be increasing. It is also a consequence of the weakening of the forint, but the effect is not yet clear.
Of course, in the current situation, traders may not be able to immediately charge higher prices for imported products, as they may have to wait a little longer due to the crisis due to the crisis.
It is interesting that the Hungarian price hike in culture, restaurants and hotels is at the forefront of Europe, that is, the price hike has started in the industries hardest hit by the epidemic. In the hospitality industry, this meant a price increase of 6.3% per year and put us in second place in Europe behind the Poles.
Inflation has already presented the MNB with a dilemma
Meanwhile, the outstanding Hungarian inflation not only causes difficulties in everyday life, but also puts the central bank in a serious position. The rising price on the part of the MNB would justify a stricter tone on the part of the MNB, but due to the economic downturn, the Monetary Council is not yet ready to tighten it clearly.
The MNB should somehow emerge from this trap this afternoon if it is to remain credible while supporting the economic recovery.
Cover picture: Getty Images