Bloomberg News

Hungary’s Inflation Rate Unexpectedly Declines to Lowest in Year

January 15, 2013

Hungary’s inflation rate unexpectedly dropped to a 12-month low in December, adding to arguments for monetary-policy makers to continue reducing interest rates.

The inflation rate was 5 percent in December, compared with 5.2 percent in November and the 5.2 percent median estimate of 15 economists in a Bloomberg survey, the statistics office in Budapest said. Prices were unchanged versus November.

Outgoing central bank President Andras Simor, who on Dec. 7 urged the bank to act “much more firmly” against inflation, has been outvoted along with his two deputies on rate cuts by non-executive members who want to spur an economy battling its second recession in four years. The bank lowered the two-week deposit rate to 5.75 percent on Dec. 18 in the fifth quarter- point cut in as many months even as price-growth was projected to exceed the bank’s 3 percent target in the mid-term.

“An earlier increase in food prices didn’t continue,” statistician Borbala Minary told reporters today when asked to explain the drop in the inflation rate. An increase in the excise tax on tobacco products, which boosted prices in December 2011 and was repeated in late 2012, is yet to show in the price index, she said.

The forint weakened last week after Economy Minister Gyorgy Matolcsy, the favorite to succeed Simor in March according to the news website Index, said Hungary should reject “traditional” economic models including policies to fight inflation that kept the forint strong.

Monetary Stimulus

Prime Minister Viktor Orban is looking to use monetary stimulus to boost growth before the 2014 elections after his “unorthodox” policies helped drive the economy into its second recession in four years, damaging investment, lending, consumption and growth.

The policies included special levies on the banking, energy, retail and telecommunications industries, as well as the nationalization of private pension fund assets to keep the budget shortfall below 3 percent of economic output to avoid losing EU development funds.

The new Magyar Nemzeti Bank chief should follow the European Central Bank and the Federal Reserve in providing monetary stimulus, “bravely” using unorthodox tools as part of a “strategic alliance” with the government, Matolcsy said on Dec. 22.

The central bank’s quarterly staff report last month lowered the inflation forecast for 2013 to an average 3.5 percent from 5.8 percent in September, as a result of the government cutting household energy prices by 10 percent from January and delaying an increase in excise taxes. The bank sees the economy growing 0.5 percent this year after an expected 1.4 percent contraction in 2012.

The four non-executive policy makers, appointed by Orban’s ruling party in 2011, have pointed to the resilience of the currency and falling risk premium for supporting monetary easing. They have also argued that the inflation rate may drop to the bank’s target in 2014 as cost shocks from energy and food prices fade.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net


Burger King's Young Buns
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus