‘By the end of the year, the consumer price index is expected to decrease to around 7–8 per cent, and the disinflationary effect will persist in 2024, but inflation is projected to return to the national bank’s tolerance range only in 2025,’ Director of the National Bank of Hungary (MNB) András Balatoni said during an online press conference presenting the September Inflation Report on Thursday.
Balatoni explained that the strict monetary policy, decreasing global commodity prices compared to last year, restrained consumption, and the market-boosting measures of the government are increasingly exerting a disinflationary effect.
This year, the annual average inflation rate is expected to be around 17.9 per cent, and tax measures will slow down disinflation in 2024, with the indicator slowing to 4–6 per cent, he added. Tax measures are expected to increase inflation by 0.8–1.1 percentage points in 2024. The new inflation forecast is significantly influenced by the increase in fuel prices compared to the previous projection, Balatoni noted.
He remarked that disinflation was supported by a decrease in the price index of industrial goods and processed foods, and price reductions in market services have also begun during the summer.
In August, three-quarters of the basket of consumer goods saw a slowdown in price dynamics,
and in one-third of the items, the price level also decreased, he detailed. The intensified price competition among retail chains contributes to the slowing growth rate of food prices, while retroactive pricing is one of the sources of profit-driven inflation, he explained.
He pointed out that according to the Inflation Report’s forecast, the volume index of the Hungarian GDP is expected to be in the range of minus 0.5 to plus 0.5 per cent in 2023.
In 2024–2025, the country’s economy is expected to grow by 3.0–4.0 per cent. This year, the low economic performance is primarily due to high inflation and a reduction in state investments. Rising prices, cautious consumer and investment decisions due to price increases lead to a decrease in domestic demand. On the other hand, net exports contribute positively to GDP growth, and agricultural growth is set to significantly improves this year’s economic performance following the droughts of the past.
The corporate loan portfolio continues to grow steadily, but the dynamics are slowing down. A revival in demand is expected in the retail credit market in the second half of the year. The significantly improved trade balance reduces the current account deficit to below one per cent of GDP this year, and it is expected to turn into a surplus from 2024.
The director added that labour demand remains strong, and following the expected acceleration of economic performance in the second half of the year,
the MNB anticipates employment growth in 2023.
In 2024, employment is expected to increase at a slower pace. The unemployment rate may be around 3.9–4.0 per cent this year, 3.5–3.8 per cent next year, and between 3.1–3.8 per cent in 2025.
The wage dynamics in early 2023 were determined by the significant increase in the minimum wage at the beginning of the year, inflation expectations, and the historically high tightness of the labour market, while the stronger decrease in inflation and the resulting increase in real wages will lead to more moderate wage dynamics in the second half of the year. In the business sector, the bank expects average wages to grow by 15.6–15.9 per cent this year.
Regarding the risks associated with the forecast, he mentioned that significant downside risks include the slowing global economy, capital outflows from emerging markets, and the protracted recovery of consumption.
Sources: Hungarian Conservative/MTI