Hungarian inflation slowed more than estimated in May as a deepening recession limited the room for further price increases across the economy.
The annual inflation rate dropped for a fourth month to 21.5%, still by far the fastest pace in the European Union, from 24% in April, the Budapest-based statistics office said on Thursday. That compares with a 22.3% median estimate in a Bloomberg survey. Prices fell by 0.4% from April, the first monthly decline since 2020.
This week, Hungary reported a sharp drop in industrial output and a double-digit decline in retail sales, underpinning forecasts for a continuing recession into the second quarter. The upshot may be that coupled with base effects, inflation may decline more rapidly in the rest of the year.
“Domestic consumption is in freefall, so companies have less and less room to raise prices,” said ING Groep NV economist Peter Virovacz. “If these trends hold, we could see single digit inflation and real wage gains by the end of the year.”
Fuel prices declined 6.6% in May from April while household energy costs fell 3%. Services and food prices continued to increase on a monthly basis, according to the stats office.
Last month, Hungary’s central bank delivered the first key interest rate cut since raising it to an EU-high 18% in October to stem currency losses. Policymakers, who reduced the overnight rate to 17%, said they would continue with “gradual” cuts while ensuring that the key rate exceeded inflation by year-end.
The driver of the monetary easing, according to the central bank, was improving risk perception, particularly as seen in the exchange rate. The forint rose to a 14-month high against the euro on Tuesday as the highest key rate in the EU continued to draw carry-trade investors.
