Will inflation over 10 percent continue in Hungary next year?
Péter Virovácz, senior analyst at ING Bank, has so far expected inflation of 12.6 percent this year and 9.5 percent next year.
The risks, however, point upwards. Among other things, because we don’t know what will happen after October 1.
The above forecasts say that the government will release the fuel price cap. If this were to be done overnight, the October inflation index would jump by 2-3 percentage points.
Of course, this also depends on the direction in which the dollar/forint exchange rate and the oil price move. The latter is favorable because, due to recession fears, the exchange rate fell to 93 dollars from the previous 110 dollars.
It may even happen that by the time the fuel cap is lifted in October, market fuel prices will have risen significantly. This will be only a narrow 2 percent of the effect of the possible complete release of the fuel price stop related to the baseline. This inflation increase applies to the remaining months of the year, while the inflation index for the whole year could be around 13 percent on average, Virovácz pointed out.
The latter calculation already includes the effect of the transformation of the overhead reduction.
Based on initial calculations, the central bank’s estimate is fair, according to which the amendment to the overhead reduction will cause a 3 percent increase in inflation for one year from August.
Transfer
Inflation will be further increased by the effect of the KATA transformation, which, however, is still incalculable. This also includes the modification of official fuel prices. For now, it is difficult to estimate how companies and enterprises experience this. It is not known whether the cost increase will be passed on.
Because these factors can also have a substantial impact on stimulating inflation, which for the next few months could be on the order of 0.5-1 percentage point based on a very rough estimate. Annually, the forecasts for this year and next year are raised by a few tenths of a percentage point.
Next year’s inflation could also push it into the double-digit range, as a result of the current amendments and the eventual release of the fuel price cap.
Recession
However, next year’s inflation picture may be rewritten by the risk of recession. If companies are faced with a drastic reduction in demand for their products and services, then their pricing position is on merit. So far, they have been in a favorable position, as they have been able to transfer almost everything to consumers – explained the senior analyst of ING Bank.
If, on the other hand, consumption begins to break down and investments fall, companies lose their pricing power. It is quite possible that a different inflationary environment will develop due to falling aggregate demand. In such cases, the period of drastic monthly repricing could come to an end.
The base effects may also be more effective, after the extremely high repricings until now moderate the annual inflation in 2023.
This means that next year’s annual inflation may decrease more quickly. If a recession larger than the castle develops, then the above b 9.5 percent forecast is substantially more favorable for future inflation.
This also shows that there is huge uncertainty regarding next year’s forecasts. Companies that are trying to plan their next year are not in an easy situation.
Risks
Péter Virovácz expects the forint to strengthen in his inflation forecasts. By the middle of next year, we can return to the HUF 360-370 levels in an ideal situation. This 10 percent strengthening of the forint against the euro has an inflation-reducing effect of almost 1.5 percentage points.
It also poses a risk if Hungary does not receive EU funds, which would cause a further significant weakening of the forint.
The other big risk is the development of energy and raw material prices on the world market. Virovácz basically calculated with falling gas prices, electricity prices and oil prices in his prognoses. However, future changes in the geopolitical picture may overwrite world market prices.