Hungary saw the largest drop in inflation for November, with the inflation index year-on-year coming in at 3.8%. This change was largely due to base effects and government measures to stabilize prices. The drop is certainly a positive sign. As economists have cautioned, the Hungarian economy might be hit by strong external shocks in one to two years that generate strong inflationary pressures.
In November, the Hungarian Central Statistical Office announced the average price level did not increase at all. This small change belies an economy that is shaped by a number of converging forces. While inflation has dropped significantly, the cost of services—like housing—and food continues to rise. These escalating costs are responsible for more than 70% of cost increases across the country. In particular, non-processed food products, particularly raw vegetables, and processed creations, specifically canned goods, experienced some of the largest monthly percentage price increases.
In November, fuel prices had a positive effect on the inflationary scene, dropping 0.6%. This drop off went a long way in reducing monthly inflation numbers, since changes in fuel prices tend to drive other economic trends. As might be expected, the relative strength of the Hungarian forint has been key in preventing price hikes on durable/persistent consumer items from jumping. Given the current economic climate, this stability will be welcome relief for consumers.
Core inflation, stripping out volatile items such as food and energy, edged lower to 4.1% YoY. Though that is a definite improvement, it is still above the institution’s long-term price stability goal of 3%. Some analysts have underscored that this drop in core inflation is certainly good news. It also highlights the persistent challenges that policymakers face in striking the right balance and sustaining economic stability.
Indeed, fiscal and monetary policy interventions have been central to rebuilding economic security from the inflationary upturns. Experts are cautioning that a number of circumstances could increase inflationary pressures going forward. A stimulus in government demand would directly stimulate more spending and thus drive prices higher. Any possible removal of recently enacted price shield measures could raise consumer costs by billions. Combined with the double-digit minimum wage increases, all of these factors are making it more difficult to keep inflation stable.
That’s why analysts are staring into this crystal ball with optimism. The think tank expect Budapest’s base rate to remain at 6.50% at least until the first half of 2026. This decision demonstrates the need for a precautionary approach by policymakers, given an unpredictable economic backdrop. The federal reserve continues to do everything possible to fire up growth. Concurrently, it expertly balances inflationary pressures that can arise from various areas of the economy.
Forecasted average inflation rates for Hungary next year—currently 3.4%—are already some of the highest in the region for next year. By 2027, it will reach only 4.3%. These projections testify to the unpredictability of Hungary’s economic outlook. They insist that policymakers and consumers need to keep a watchful eye on the developing story.
Nationwide, the services sector had an average price decrease of 0.1%. This would imply that large swaths of the economy are experiencing deflationary forces at work. That doesn’t change the bigger picture concerns on increasing costs elsewhere, especially food and other services.