The consumer price index will fall to 7-8 percent by the end of the year, and the disinflationary impact will persist in 2024, but inflation will only return to the central bank’s tolerance band in 2025, András Balatoni, Governor of the Hungarian National Bank (MNB), said at an online press conference presenting the September Inflation Report.
András Balatoni explained that the tight monetary policy moderating global commodity prices compared to last year, the subdued consumption, and the downward pressure on prices from the government’s market competition stimulus are having a broader disinflationary impact. This year, inflation could average around 17.9 percent on an annual basis, with base effects fading and tax measures slowing disinflation in 2024, with the indicator slowing to between four and six percent, he added.
Fiscal measures will add 0.8-1.1 percentage points to inflation in 2024, the director said. Compared to the previous forecast, the increase in the new inflation forecast is mainly driven by higher fuel prices. He said that disinflation was supported by a decline in the price index for industrial goods and processed food, while prices for market services also started to fall during the summer. In August, price dynamics slowed down in three quarters of the consumer basket, and the price level moderated in a third of items, he noted. The intensifying price competition between retail chains is helping to slow the pace of food price growth.
He pointed out that the volume index of domestic GDP is expected to be in the range of minus half to plus half a percent in 2023, based on the Inflation Report forecast. In 2024-2025, economic output is expected to grow between 3.0 and 4.0 percent.
This year, the low economic performance is mainly due to high inflation and a slowdown in public investment.
Falling real wages due to price increases and cautious consumer and investor decisions are leading to a contraction in domestic demand. Net exports are making a positive contribution to GDP growth. This year’s economic performance will be significantly boosted by agricultural growth, corrected after last year’s drought, he emphasized.
Corporate credit is growing steadily, but the pace is slowing. Demand in the household credit market is expected to pick up in the second half of the year. A marked improvement in the external balance will bring the current account deficit below one percent of GDP this year, with the current account turning into surplus from 2024.
He also noted that
labor demand remains strong, with employment expected to increase throughout 2023, on the back of the recovery in economic output expected in the second half of the year, while employment will rise at a more moderate pace in 2024.
The unemployment rate is expected to range from 3.9-4.0 percent this year, 3.5-3.8 percent next year, and between 3.1-3.8 percent in 2025.
Wage dynamics in early 2023, are driven by the significant increase in the minimum wage at the beginning of the year, inflation expectations, and historically high labor market tightness, while the accelerating decline in inflation and the resulting increase in real wages will lead to more subdued wage dynamics in the second half of the year. In the competitive sector,
MNB expects average wages to grow between 15.6 and 15.9 percent this year.
As for the risks to the forecast, he said that an important downside risk is the slowing global economy, with capital outflows from emerging markets and a protracted recovery in consumption. Upside risks to inflation and downside risks to GDP were more prominently identified by the council, he concluded.
Via MTI, Featured image: Pixabay