Hungarian inflation survives its first shock; expect further acceleration ahead

Inflation in March 2026 increased slightly from the decade-low level reached in February, according to the latest data released by the Hungarian Central Statistical Office (HSCO). This is clearly a positive surprise, meaning that inflation rose by less than expected as a result of the war in the Middle East. Of course, it is only the first month of the shock, so it is too soon to relax, but it is encouraging that companies have been holding off on price hikes so far. The year-on-year inflation rate was 1.8%, an increase of 0.4ppt from the previous month, while prices rose by 0.4% on a monthly basis.

• While the conflict in the Middle East has not yet impacted food prices, it will soon put upward pressure on agricultural costs, primarily through rising fertiliser prices. Food prices fell by 0.1% on a monthly basis in March
• In the case of durable goods, the monthly price increase of 0.4% can be considered quite modest, given the significant weakening of the forint during March. This is therefore one of the main surprises
• The price of household energy remained unchanged on a monthly basis, because of the impact of the government-ordered utility discount resulting from January’s cold spell
• The 4.6% monthly increase in fuel prices was consistent with our expectations and the significant weakening of the forint against the dollar, as well as soaring oil prices
• Inflation in services developed favourably, with only a 0.2% monthly price increase in March. This was the other key factor behind the lower-than-expected headline and core inflation

The core inflation rate – adjusted for volatile items (including changes in fuel prices) – has shown a more favourable picture. In fact, it declined compared to the previous month to moderate to 1.9% on a year-on-year basis. While it is still too early to say that Hungarian inflation will emerge relatively unscathed from the latest global energy price shock, the signs are pretty positive that maybe it won’t be that bad after all.

Given the latest price pressure figures and the geopolitical developments, there appears to be a real chance that this year's inflation rate will be more favourable than the trajectory outlined by the National Bank of Hungary in March in its latest Inflation Report. However, the toughest part is yet to come, as energy prices remain significantly higher than before the outbreak of war in Iran. Furthermore, the recently announced two-week ceasefire does not necessarily mean a lasting solution regarding the Strait of Hormuz.

According to our latest flash estimate, the year-on-year inflation rate could rise to around 3.0-3.5% by the end of the first half of the year and reach around 4.5% by the end of the year. Inflation has essentially begun to rise from a 10-year low, and for now, the pace of acceleration remains moderate. We therefore estimate that 2026 average inflation might ultimately settle in the vicinity of – but somewhat above – the central bank’s 3% inflation target.

However, this is unlikely to influence the stance of monetary policymakers in the short term, given that energy prices and the volatility of the forint continue to pose risks, and this may call for caution. At the same time, however, we cannot rule out the possibility of an interest rate cut this year. A favourable and steady turn in geopolitical developments and the projected inflation trajectory could provide an opportunity for a restart of monetary easing in the second half of the year, particularly towards the end of 2026.