Hungary: Low inflation complicates rate path – ING

ING economists Peter Virovacz and Zoltán Homolya note that Hungarian inflation fell to 1.4% year-on-year in February 2026, below consensus and their own optimistic forecast. Core inflation dropped to 2.1%, but rising energy costs, fuel prices and a weaker Forint threaten this benign picture. They see inflation rebounding above 3% by mid-year and towards 4% by year-end, averaging around 3% in 2026.

Low CPI challenges rate cut prospects

"Inflation in Hungary came even lower than the most optimistic forecast. The base effect and the positive trend in monthly repricing pushed the headline number to a level not seen in 10 years. However, this may not be enough to keep the rate-cutting door open."

"The core inflation rate, adjusted for volatile items, also developed extremely favourably, falling to 2.1% on an annual basis. The headline inflation rate was last this low in 2016, while core inflation was this low in 2018. The figures show that the latest energy price shock, caused by the outbreak of war in the Middle East, could not have come at a worse time."

"With inflation indicators like these, household inflation expectations could have finally started to decline significantly. At the same time, rising fuel prices (even though an official price cap has been introduced) and increasing energy costs are putting further pressure on prices. Furthermore, the weakening of the forint is not helping inflation expectations either."

"According to our latest flash estimate, the year-on-year inflation rate could rise above 3% again by the end of the first half of the year, reaching 4% by the end of the year. While the timing is unfortunate in terms of inflation expectations, the shock has come at the 'best' time in terms of the year-on-year inflation print. In essence, inflation can now start to rise from a 10-year low."

"Therefore, if supply disruptions ease and markets calm down in the coming weeks, there is a real chance that inflation will average 3% for the year as a whole."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)