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Central Bank: Food Price Rate of Increase May Double in 2022

Péter Cseresnyés 2021.12.20.

In 2022, inflation will be much higher, while economic growth will be lower than previously expected, the National Bank of Hungary (MNB) forecasts in its latest inflation report. According to the MNB, the price increase of fuel and tobacco will slow down next year, industrial goods and services will rise faster than this year, while the rate of growth in food prices will almost double in 2022.

The MNB has published its December inflation report, which aims to detail the central bank’s monetary policy by presenting past and expected developments in inflation and providing detailed assessments of the key macroeconomic factors driving inflation.

One of the key findings of the document is that the MNB expects inflation to be between 4.7 and 5.1 percent by 2022.

Hungary's Inflation in November Highest in 14 Years
Hungary's Inflation in November Highest in 14 Years

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This is a huge upward adjustment, given that three months ago the National Bank was forecasting a range of 3.4-3.8 percent, which clearly shows how much the inflation outlook of Hungary has deteriorated.

Furthermore, in the first quarter of 2022, inflation could still hover around 6 percent, then returning to the MNB’s tolerance band of 2-4 percent in the last quarter of next year, and only in the first half of 2023 could the central bank’s target of 3 percent be reached.

It is somewhat reassuring that, according to the Central Bank, inflation reached its peak in November, with a 14 year record high of 7.4% and is expected to gradually decrease.

Core inflation, on the other hand, will rise further in the coming months and will be close to 6 percent by mid-2022. The trend is not expected to fall much in 2022 as a whole, averaging between 5.3 and 5.5 percent per year.

The central bank also created a detailed decomposition of its inflation forecast containing some striking figures.

The most jarring of the findings is that food prices could rise by 6.9% next year, which is almost double this year’s official 3.5% increase.

Also, prices of services and manufactured goods could increase more in 2022 than they did this year, with only the slowdown in the price increases of fuel and tobacco slightly pulling inflation back, according to the MNB.

In addition to raising its inflation forecast, MNB also lowered its projection for economic growth for next year to 4.0-5.0% from the September estimate of 5.0-6.0%.

Central Bank Lifts Inflation Forecast for 2021, Lowers GDP Growth Estimate
Central Bank Lifts Inflation Forecast for 2021, Lowers GDP Growth Estimate

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It put economic growth at 3.5-4.5 percent for 2023 and at 3.0-4.0 percent for 2024. In September, the MNB put the 2023 growth rate between in the 3.0-4.0 percent range.

This also means that more revenues from taxes and contributions will reach the treasury than projected amounts.

However, most of this extra revenue will be spent by the government on the pension premium disbursement,  the 13th-month pension, the refund of the personal income tax of those who have children, the partial tax exemption of people under the age of 25 as well as the fiscal tax cuts adopted to offset the significantly higher minimum wage, the MNB notes.

Featured photo illustration via pixabay.com