Hungarian inflation eased for a second month but remained by far the highest in the European Union, which is likely to prevent the central bank from considering interest-rate cuts anytime soon.
(Bloomberg) — Hungarian inflation eased for a second month but remained by far the highest in the European Union, which is likely to prevent the central bank from considering interest-rate cuts anytime soon.
Annual consumer price growth slowed to 25.2% in March, from 25.4% the month before, trailing the median estimate of 25% in a Bloomberg survey. Month-on-month prices increased 0.8%.
The drop in the inflation rate was the result of a combination of a deepening economic downturn, a stronger currency and lower energy costs in Europe. Household energy and car fuel prices both declined from a month earlier, however food prices continued to rise.
“Declining domestic demand has weakened the pricing power of retailers,” ING Bank’s analyst Peter Virovacz said, adding that the delayed effect of price hikes in services will remain an upward inflation pressure.
The central bank has resisted government calls to ease monetary policy as it needs to stabilize the forint and cool the economy further to end the country’s worst cost-of-living crisis since mid-1990s.
After raising the overnight rate in an emergency move to 18% in October, policy makers last month committed to holding the effective interest rate high until there is a “trend-like improvement” in Hungary’s risk assessment. That helped fuel the forint’s gains of more than 5% against the euro since mid-March.
“It’s too early to get excited about Hungarian inflation falling,” said Izidor Flajsman, a strategist at Toronto Dominion Bank. The higher comparative base will secure a further decline in the inflation rate in the second half of the year, “but the monthly inflation rate also needs to come down,” he said.
Viktor Orban’s government wants to see inflation easing to single digits by the end of the year, and plans to lift some its prices caps once the decline gathers pace. The central bank has criticized the state-imposed caps on the cost of staple foods and other goods, saying the measure has exacerbated overall inflation.
“In order to bring inflation down into the singe digits, we will soon contact representatives of the large retail chains,” Economic Development Minister Marton Nagy said in an interview with economics news site Vilaggazdasag after the data was published, touting the government’s efforts to monitor consumer prices.
(Updates chart, adds quote from economic development minister in last paragraph.)
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