The monthly change in prices was flat, a result described by analysts as a major positive surprise. Orsolya Nyeste, Chief Macroeconomic Analyst at Erste Bank, noted that the strongest positive deviation came from food prices, while other major consumption categories showed little evidence of significant repricing. The strength of the forint has exerted a meaningful downward influence on the prices of manufactured goods and durable consumer goods, while service providers have demonstrated limited willingness to raise prices. Erste Bank subsequently revised its forecast for average inflation in 2026 downward to 2.8 per cent, reflecting the exceptionally low inflation recorded in the first five months of the year.
Péter Virovácz, Chief Economist at ING Bank, emphasized that no major market participant had predicted a further slowdown in inflation, noting that Hungary’s performance appears to defy usual economic relationships given ongoing disruptions to global energy markets. Virovácz attributed the surprise primarily to falling food prices and the favourable exchange rate, which has also contributed to lower prices for durable goods. Promotional discounts linked to the upcoming FIFA World Cup further pushed average prices lower in several product categories. ING now expects inflation to remain subdued throughout the summer, forecasting that annual inflation will not return to around 3 per cent until autumn. Consequently, the bank lowered its estimate for average inflation this year to 2.6 per cent.
The latest figures have reinforced the case for an interest rate cut, with the central monetary issue now being the magnitude of the reduction. While a 25-basis-point cut is considered the base case given the central bank’s preference for gradualism, some analysts argue a 50-basis-point reduction could be justified without jeopardising stability. A larger cut might limit the forint’s appreciation, providing relief to exporters who have complained about the currency’s rapid strengthening. Dániel Molnár of the Government Development Agency’s Economic Analysis Centre cautioned that inflationary pressures could gradually return, citing the potential impact of global energy conflicts and the timing of the removal of regulated fuel prices and retail margin caps. Despite this, GFÜ expects inflation to accelerate gradually, rising above 4 per cent by the end of the year, but still supports the case for further easing as financial markets have already begun pricing in monetary relaxation.
Market dynamics reflect the shift in policy expectations. The forint has reached multi-year highs, and yields on retail government bonds have fallen by 100 basis points over the past two months. The risk premium on Hungarian bonds relative to German Bunds has dropped to historically low levels. Analysts suggest that the NBH’s staff projections, which previously expected an above-5 per cent peak in inflation this year, are likely to be revised significantly downward, potentially to the vicinity of 2.5 per cent. While GDP forecasts for 2026 and 2027 are expected to remain largely unchanged at 1.7 per cent and 3.0 per cent respectively, the improved geopolitical sentiment and external conditions have reduced risks for the central bank.
Long-term currency prospects also feature in economic discussions, with experts at recent conferences noting that a credible commitment to adopting the euro within four to five years could put the forint on a sustained appreciation path. However, investors are advised that excessive currency strength can come at a cost, as seen in Slovakia’s post-euro growth slowdown. For now, the immediate focus remains on the June 23 decision, where the NBH is expected to cut rates, likely by 25 basis points, to bring the base rate down to 6.00 per cent, while keeping the door open for further easing later in the year.
