Hungary’s inflation rate unexpectedly slowed in May, surprising economists who had broadly anticipated a modest acceleration in price growth. Analysts speaking to MTI attributed the development largely to the strength of the forint and said the latest data gives the National Bank of Hungary (MNB) a clear opening to resume monetary easing.
According to fresh data published by the Hungarian Central Statistical Office (KSH), annual consumer price inflation slowed to 1.8 per cent in May from 2.1 per cent in April. On a monthly basis, prices remained unchanged. The result significantly outperformed market expectations, as economists had forecast inflation to rise to around 2.2 per cent.
Chief Macroeconomic Analyst Orsolya Nyeste at Erste Bank described the figures as a major positive surprise. Instead of the modest monthly increase expected by analysts, consumer prices were flat, while annual inflation and core inflation both remained subdued.
She noted that the strongest positive surprise came from food prices, while other major consumption categories also showed little evidence of significant repricing. The strength of the forint appears to be exerting a meaningful downward influence on the prices of manufactured goods, while service providers have likewise demonstrated limited willingness to raise prices.
Nyeste argued that the broader picture remains largely unchanged. As long as extensive administrative price controls remain in place, there is little immediate inflationary pressure in the Hungarian economy. While inflation is expected to gradually accelerate in the coming months, the pace of that increase is now likely to be more moderate than previously anticipated. Reflecting the first five months of exceptionally low inflation, Erste Bank revised its forecast for average inflation in 2026 downward to 2.8 per cent.
Chief Economist Péter Virovácz at ING Bank also emphasized the unexpected nature of the data, noting that no major market participant had predicted a further slowdown in inflation. He remarked that, given the ongoing disruption to global energy markets caused by the prolonged closure of the Strait of Hormuz, Hungary’s inflation performance appears to defy many of the usual economic relationships.
Like other analysts, Virovácz pointed to falling food prices as the primary driver behind the surprise. In his view, consumers are now clearly benefiting from the stronger forint. The favourable exchange rate has also contributed to lower prices for durable consumer goods, while promotional discounts linked to the upcoming FIFA World Cup helped push average prices lower in several product categories.
ING now expects inflation to remain subdued throughout the summer and forecasts that annual inflation will not return to around 3 per cent until the autumn. As a result, the bank lowered its estimate for average inflation this year to 2.6 per cent. The latest figures have also reinforced expectations that the central bank will cut interest rates at its next policy meeting. The main question facing policymakers, according to Virovácz, is whether the Monetary Council will opt for a 25-basis-point or 50-basis-point reduction.
Head of Analysis Dániel Molnár at the Economic Analysis Centre of the Government Development Agency (GFÜ) likewise described the inflation figures as a significant positive surprise. He highlighted the unusual decline in food prices during a period that typically sees seasonal increases and said the stronger exchange rate likely played a decisive role. Similar effects were visible in clothing and durable consumer goods prices.
Looking ahead, however, Molnár cautioned that inflationary pressures could gradually return. The impact of the ongoing conflict involving Iran on global energy markets may increasingly feed into consumer prices over the coming months. Future inflation trends will also depend heavily on the timing of the removal of regulated fuel prices and retail margin caps. GFÜ expects inflation to accelerate gradually and rise above 4 per cent by the end of the year. Nevertheless, the recent data strengthens the case for another interest rate reduction by the central bank, as inflation has consistently undershot earlier forecasts and financial markets have already begun pricing in monetary easing.
‘Looking ahead, however, Molnár cautioned that inflationary pressures could gradually return’
Chief Economist Gábor Regős at Gránit Fund Management stressed that the 1.8 per cent inflation rate is well below the MNB’s 3 per cent target and also lower than the eurozone average of 3.2 per cent. He identified the strong forint as the most important factor behind the low inflation environment, adding that lower inflation expectations have become increasingly embedded in pricing behaviour. Retail margin caps continue to suppress price growth, while higher oil prices and resilient domestic demand remain the main upside risks. Gránit Fund Management now expects average inflation for the year to remain below 3 per cent, improving on its earlier forecast of 3.2 per cent.
Analysts at MBH Bank also highlighted food prices as the biggest source of the positive surprise. They noted that core inflation performed better than expected and continues to track closely with the headline inflation rate. The bank expects inflation to accelerate gradually over the coming months, but revised its full-year forecast downward from 3.0 per cent to 2.7 per cent. For 2027, it lowered its projection slightly from 3.8 per cent to 3.7 per cent.
According to MBH, the stronger forint, regulated fuel prices and the postponement of the removal of retail margin caps are all helping to contain inflation this year. The favourable exchange rate could also moderate pricing pressures in 2027. The bank expects the National Bank of Hungary to begin cutting interest rates again in June, with further reductions likely throughout the remainder of the year. Its forecast sees the benchmark rate falling to 5.50 per cent by year-end.
The unexpected decline in inflation has therefore shifted market expectations, with economists increasingly viewing the current environment as one that supports both lower borrowing costs and a more benign inflation outlook than previously anticipated.
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