The Hungary headline inflation increased significantly by 0.7% to 2.9%(Year-on-Year) from May to June. At first glance this was worrying as the central bank targets 3% inflation, but a move of this magnitude was already priced-in by the markets. The main factor driving June inflation was fuel where prices have actually risen by 9.2% from May to June which explains the month-on-month change in inflation. Ignoring oil’s effects, headline inflation is actually around 2.3% which gives the central bank some comfort and room to maneuver around the 3% target.

The central banks sets headline inflation targets so that inflation remains manageable, the target provides a good barometer of the cost of living in its country. If the real headline inflation does begin to rise in Hungary and neighboring Central European countries central banks may be forced to hike rates to keep Inflation down. Most countries have been engaged in easing cycles since the start of the Coronacrisis so, a need to hike rates may pose considerable confusion for central banks.

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