If only slightly, but Hungary's inflation rate continued to decline in August

According to a recent report from the Hungarian Central Statistical Office (KSH), the Hungarian inflation rate fell to 16.4 percent in August.

This means that consumer prices rose by 16.4 percent in August compared to the same month last year, which represents a decline from the 17.6 percent seen in July. Portfolio noted that the last time the rate of price increases was lower than this was in June last year. Compared to July, however, consumer prices rose by 0.7 percent, which is slightly worse than the figure for the previous month.

Household energy and fuel prices have risen significantly over the past year according to the KSH. In 12 months’ time,

• the price of food has increased by 19.5 percent, with sugar going up the most (67.9 percent, due to the erasing of the price caps), while the price of flour has actually decreased by 10.4 percent.
• Household energy has gone up by 34.7 percent, while fuel prices increased by 31.1 percent, and
• the price of services has increased by 13.2 percent on average.
• Hungarians had to pay 16.4 percent more for alcoholic beverages than the year before.

But with so many negatives, how is it possible that the inflation rate has fallen at all? The reason is quite interesting: although there were increases both in the base period and now, food prices rose more between July and August last year than between July and August this year, thus it is this base effect that has now brought inflation down.

Inflation peaked in Hungary at 25.7 percent in January, and the year-on-year rate of increase has been in decline since then. This is mainly due to the external causes of inflation having largely passed, and the base effect: comparing month-on-month with last year's higher values.

While it may seem like a success that inflation has fallen so much over the past six months in Hungary, these numbers are still very high by international standards. For example, Eurostat data show that June's inflation rate in Hungary was 19.9 percent, compared with just over a quarter of that in the eurozone at a mere 5.5 percent.

Portfolio forecasts that the August data are unlikely to have a notable impact on the Hungarian National Bank's monetary policy, as inflation continued to fall as anticipated. Thus, we should expect the Monetary Council to cut the interest rate by another 100 basis points at the end of September, thereby bringing it into line with the 13 percent base rate.