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Hungarian inflation soars to record high as central bank raises interest rates

Hungarian inflation soars to record high as central bank raises interest rates

Hungarian inflation in July soared at the fastest point in a generation as the country's central bank raised interest rates by the highest of any member of the European Union.

Compared to a year prior, Hungary saw its consumer prices rise by 13.7%, shattering previous economic forecasts, according to Bloomberg. Moreover, the country's core inflation, which measures long-term inflation without volatile commodities, rose by 16.7%.

The Forint, Hungary's main currency, was the third-worst performance in countries with emerging markets, falling more than 8% against the Euro. In July, the central bank attempted to alleviate economic pressures by hiking the interest rates by 200 points, bringing the yearly total to more than 800 basic points.

"The central bank has no choice but to continue its rate-hike cycle with decisive steps," Mariann Trippon, a Hungarian economist based in Budapest, told Bloomberg. Trippon, along with other Hungarian economic strategists predicts the interest rate will probably rise to 13% by the end of 2022.

The receiver station of the Druzhba oil pipeline between Hungary and Russia is seen at the Hungarian MOL Group's Danube Refinery in Szazhalombatta, Hungary, May 18, 2022.

"In the next months the bank could raise rates by up to 100 basis points each month... in order to reach positive real interest rates as soon as possible," Peter Virovacz, a senior economic analyst in Hungary, told Reuters."(That) could sustainably strengthen the forint. We do not exclude that the central bank will only stop with rates at around 14% (or 15%)."

Overall for the year, basic food prices for items such as bread and cheese rose by more than 50%. The brunt of Hungarian inflation is expected to shift toward energy sources.

Hungarian Prime Minister Viktor Orban's government plans to slowly remove a price cap on motor fuel in order to cut spending amid the potential spike in energy costs.


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