Hungary reported higher-than-expected annual 25.7% in January from 24.5% in December, while Czech inflation at 17.5% was a tad above market expectations of 17.3%. Inflation in Hungary is the strongest in central Europe and the central bank has the highest interest rates in the European Union after sharp rate hikes last year, in part to shift the forint off record lows. Average inflation last year rose to 14.5%, the highest in 25 years, and the central bank's outlook in December showed it could be even higher this year, with annual inflation slowing more significantly only from mid-2023 onwards. January headline inflation came in above market expectations for a 25.2% increase. Like other policymakers in central Europe, Hungarian rate setters are seeking to keep rate the policy stable for now as the economy slows sharply. Peter Virovacz, an analyst at ING, said the January figures were likely the peak in inflation, and price growth could start slowing from February but it would be "painfully slow". "This data should not change the central bank's stance: they will keep a wait-and-see attitude and I don't expect a marked change in policy in the first quarter and I am not even sure they will start preparing a change in policy," he said. "The only silver lining in this data is that January could have been the peak..." Food prices rose by 44% year-on-year, household energy prices jumped by 52.4%, while fuel prices rose by 35.9% after a supply shortage forced the government to abandon year-long price cap in early December. CZECH POLICY FLAGGED UNCHANGED Czech prices jumped by 6% in January, mainly following the expiration of a government subsidy scheme for household energy prices. Food and housing prices, which include energy, were up by just under a quarter from a year earlier.
"The coming months will bring a relatively brisk drop in inflation, which will be mainly caused by a higher comparative base than last year," said economist Petr Dufek at Banka Creditas. "However, the return to the target of 2% will still take a long time."
The market had expected a 17.3% rise, while the central bank predicted 17.6% in the month when price growth should peak.
Under Governor Ales Michl the bank has resisted calls for further rate hikes since mid-2022 and has kept the main repo rate at 7.0%, pledging to keep rates relatively higher for longer to sustainably bring inflation to the 2% target from the first half of next year.
In minutes of its Feb 2 policy meeting released on
Friday, board members discussed the risk of a wage-inflation
spiral and Deputy Governor Eva Zamrazilova said she would be
ready to raise rates if January or February repricing by
companies was higher than expected - which did not happen in
January.
(Reporting by Krisztina Than; editing by Philippa Fletcher and
Jason Neely)
