Lowest inflation for the last ten years, and its policy consequences

HUNGARY - In Brief 08 Aug 2026 by Istvan Racz

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The headline rate of CPI-inflation fell to 1.2% yoy in July, from 1.7% yoy in June, the lowest figure seen since November 2016. This was a great surprise, analysts expected 1.5% yoy. Core inflation decreased by less, to 1.9% yoy from the previous month's 2% yoy, but non-fuel inflation was also down sharply, to 1.5% yoy from 1.9% yoy:Looking into the details, expert comments referred to the role of food prices (-1% mom, -1.1% yoy) and of fuels (-1.3% mom, -0.1% yoy). All this is true, but we would draw the Reader's attention to the overriding role of the strong forint:Indeed, EURHUF fell 10% yoy in July (after a peak -12% in June), whereas USDHUF dropped 7.9% yoy (after exactly the same 12% yoy in June). Merchandise import prices, agricultural and industrial producer prices all decreased in June, compared to one year earlier.On this basis, the more-or-less promised 25bps base rate cut for August can be largely taken for granted. Analysts have added that July's inflation data has increased the chances for a further base rate cut in September. Yes, that is true, but even so no one knows how big the probability of a September rate cut, or indeed of any rate cut in the rest of this year can be. Apart from the major uncertainties stemming from external conditions, first the MNB (and us all) should see the government's first fiscal policy proposals, and for that to be seen, first the results of the ongoing rush for EU funds (the RRF money) will have to be known. But those cannot be known before the very end of August. On this, we see some 80% probability that Hungary will get the bulk of the €10bn RRF money, if not all of that. In this case, yes, the current unexpectedly good...