Hungary sees price drops in several products in June amid inflation trends

Service prices in Hungary experienced a monthly increase of 0.3% in June, a pace considered typical for the season. However, this contributed to an annual inflation rate of 4%, with services remaining the primary driver of overall price hikes. Within the service sector, tourism, cultural activities, and personal care services, such as those for body care, health, and household maintenance, saw prices rise faster than the average.

Analysts attribute the accelerated price dynamics in these labor-intensive service areas to wage increases. Unlike goods, the impact of production costs or the strengthening Hungarian forint is less directly reflected in consumer prices for services. This trend suggests that rising labor expenses are a significant factor influencing the cost of these essential services.

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The prices of services rose by 0.3 percent on a monthly basis, which pace is generally in line with seasonal characteristics. However, the annual rate still amounted to four percent, meaning that services continued to be the main driver of total inflation.

Looking ahead, analysts predict that Hungary's central bank will likely continue its base interest rate cuts at its July meeting, provided no major external shocks occur. The inflation trajectory suggests a slight acceleration in the coming months. This is partly due to the expiration of agreements with the banking and telecommunications sectors at the end of June, which had previously deferred inflation-linked price adjustments. Additionally, prices for services like taxis and gambling are set to increase from August.

Further uncertainty surrounds the future of the food price cap, with no decision yet made on its potential removal. However, its impact on overall inflation, should it be phased out, is expected to be considerably smaller than when it was initially introduced, likely only a few tenths of a percentage point. Overall, inflation is projected to remain below the central bank's target by the end of the year, with the annual average expected to slightly exceed 2%.

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Based on the June data, unless a significant external shock occurs, it is almost certain that the central bank will continue the base interest rate cut at its July meeting.