Despite price-shield measures, Hungarian inflation remains high

According to the latest data released by the Hungarian Central Statistical Office (HCSO), the average price level increased by 0.1% in June 2025 compared to the previous month, which is in line with expectations. While the monthly price change was modest, year-on-year inflation increased to 4.6%, primarily due to base effects. Therefore, the overall situation remains unchanged: month-on-month inflation has remained within the 0.0-0.2% range for the past four months, driven by government price measures and voluntary (but government-induced) price restrictions introduced at different times.

Despite these interventions, inflation remains a problem, sitting well above the upper end of the National Bank of Hungary’s inflation tolerance band. Thus, despite all efforts, Hungary continues to have high structural inflation. This is reflected in the fact that, although core inflation moderated in June, it is 4.4%.

• Although the one-time price reduction from the margin freeze has worn off for food items, seasonal factors kept food inflation in check, with prices rising by just 0.1% month-on-month. However, the low base pushed the yearly price change above 6% again.
• There was an upside surprise in consumer durables, where monthly re-pricing was high despite the relatively strong HUF. Perhaps some front-loading is visible in the price changes with regard to the looming tariff war. Household energy prices also pushed the monthly price increase rate up for the second consecutive month.
• While fuel prices increased in June, the product group including fuel and other items saw a substantial monthly price decline. This is because the price freeze on some household goods, which came into effect on 19 May, is primarily reflected in this category. In other words, this item pulled inflation back the most in June.
• It's important to note that the impact of the voluntary price cut on pharmaceutical products has not yet been reported by the statistical office, so it will likely be reflected in the July data. Therefore, another government measure will lower the monthly inflation rate next month.
• The one-month increase for services was 0.6%, mainly due to seasonal repricing; therefore, this was not a surprise. This is especially the case since last year's hot repricing provided a high base; the year-on-year print fell to 5.4%, the lowest since February 2022, helped by government-induced measures too.

The 0.2ppt acceleration in the year-on-year inflation in June was primarily due to base effects. There are no outliers this time when it comes to the contributions, as all major items contributed approximately +/–0.1ppt to the overall rate of price increases. As expected, in the absence of any obvious factor modifying inflation, year-on-year core inflation decreased by 0.4ppt compared to May due to base effects. And while sticky price inflation continued to fall, the 5.2% YoY figure is still far from reassuring.

Overall, the official statistical indicators show a mixed picture. Despite the price-shield measures, the year-on-year indicator has been trending upwards for three months, while monthly inflation remains subdued and favourable by comparison. The key question now is whether household inflation expectations can start to come down in any meaningful way after four months of low repricing. So far, there has been no miracle, only a slight improvement, which is not enough to anchor expectations.

Looking ahead, inflation is expected to fall to around 4% in the coming months due to the high figures recorded last year. A major risk factor is the drought in June and the severe storms in July, which could cause unprocessed food prices to rise. Although inflation will dip to around 4%, any subsequent price stability will only be apparent and temporary. The inflation rollercoaster is slowing down, but this could be deceptive.

We forecast inflation to rise to around 5% in the fourth quarter, averaging 4.6% across 2025 as a whole. Without government price interventions, the average inflation rate this year would exceed 5.5%. However, the inflation erased this year will reappear later, meaning today's lower inflation rate will be offset by higher price increases in the future. This kind of inflation smoothing could maintain high price increases for up to two years, which could be detrimental in the long term if it becomes embedded in economic agents' expectations. As of now, our average inflation expectations for 2026 and 2027 are 3.9%.