Hungary’s annual inflation rate slowed to 1.2 per cent in July, significantly below analysts’ expectations, according to data released by the Hungarian Central Statistical Office (KSH) on Thursday.
Consumer prices were 1.2 per cent higher than a year earlier and fell 0.1 per cent compared with June. Economists had expected annual inflation of 1.5 per cent, following readings of 1.7 per cent in June, 1.8 per cent in May and 2.1 per cent in April.
Gábor Regős, chief economist at Gránit Asset Management, described the figure as a major surprise, noting that Hungary had not recorded a lower inflation rate in a decade. He said the data substantially changed the outlook for inflation this year.
He highlighted that food prices, excluding catering services, fell by 4.4 per cent year-on-year, suggesting that catering services were now one of the main drivers of inflation. He also pointed to household energy prices as another surprise, noting that the figures were largely influenced by lower consumption volumes rather than actual price reductions.
Regős added that a strong forint, subdued inflation expectations and improving business confidence had created a low-inflation environment, while the impact of tensions involving Iran had not yet appeared in the data, although this could change in the coming months.
He said the latest figures made it more likely that the National Bank of Hungary (MNB) would cut interest rates again in September, potentially lowering the base rate to 5.0 per cent by the end of the year, provided further weakness in the forint does not intervene.
Orsolya Nyeste, senior macroeconomic analyst at Erste Bank, said a further decline in annual inflation had been expected, but the scale of the slowdown exceeded forecasts. She identified falling food prices as the main disinflationary factor, adding that although drought conditions and higher commodity prices linked to the conflict involving Iran could eventually push food prices higher, those effects now appeared likely to emerge only next year.
She also noted that household energy inflation continued to be affected by settlement and billing practices, while service inflation was driven by seasonal increases in holiday and travel prices, as well as July price rises by banks and telecommunications providers after voluntary pricing restrictions expired at the end of June.
Nyeste said July was likely to mark the low point for annual inflation, with a modest increase expected from August onwards. Even so, she expects inflation to remain below the central bank’s 3 per cent target for the rest of the year, creating room for further monetary easing while maintaining positive real interest rates.
Dániel Molnár, chief analyst at the GFÜ Economic Analysis Centre, also described the July data as a major surprise. He said the decline in food prices, both monthly and annually, was primarily driven by the stronger forint, which also helped reduce prices for durable consumer goods. Lower global oil prices contributed to a 1.3 per cent monthly decline in fuel prices, further easing inflation.
Molnár expects inflation to accelerate again in the coming months. He warned that persistent drought could push energy prices higher, influencing corporate pricing decisions, while poor agricultural yields could lead to higher food prices. He also cited uncertainty surrounding the impact of the conflict involving Iran on energy and fuel prices, as well as the eventual removal of retail margin caps.
‘Persistent drought could push energy prices higher, influencing corporate pricing decisions, while poor agricultural yields could lead to higher food prices’
Despite these risks, he expects inflation to remain below the central bank’s target through the end of the year, averaging around 2 per cent in 2026 before rising to about 3.0 per cent next year.
Following the release of the inflation data, the National Trade Association (OKSZ) again called for the government to abolish retail margin caps on food products. The association said the 4.4 per cent decline in food prices was better than expected and may represent a record fall for the category.
According to the organization, retail margin caps have no longer played a meaningful role in food price developments since May, with favourable domestic and international market trends and the stronger forint more than offsetting higher energy costs. It also argued that recent retail sales data showed there was currently no inflationary pressure coming from consumer demand.
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