The Department of Economic Policy and Economic Theory of the Hungarian Economic Association convened leading representatives of the domestic analytical community for a roundtable discussion. During the ninety-minute debate, participants discussed the level of inflation, the sustainability of price controls, the exchange rate of the forint, and the possible direction of central bank interest-rate policy.
Three years after the previous inflation roundtable, the Department of Economic Policy and Economic Theory of the Hungarian Economic Association once again gathered its experts. President Péter Halmai described the timeliness of the event by noting that although Hungary’s inflation rate had fallen spectacularly from a European peak — where it had even reached a maximum of 25.6 percent — the governor of the Hungarian National Bank still projected year-end price growth of as much as 5 percent during the very week of the meeting. The tension therefore remains.
The very first question of the debate was intentionally provocative: “Is there inflation at all, or isn’t there?” asked editor-in-chief Zoltán Farkas. According to the statistics, the consumer price index stood at 1.8 percent, which formally already appears close to price stability. On store shelves, however, the picture is different: the prices of certain products suddenly and unexpectedly jump, while retailers simultaneously advertise competing price-reduction campaigns.
Gergely Tardos, analyst at OTP Bank, approached the issue through the so-called “supertrend indicator”: core inflation calculated after excluding food, fuel, and indirect tax changes currently fluctuates around 2–2.7 percent. Péter Quittner from the Hungarian National Bank confirmed that one of the key assumptions behind their 3.8 percent annual forecast had been that margin caps and protected prices would be phased out around May — an assumption that has since changed after the regulations became indefinite in duration.
“Based on just a few months of data, it would be far too early to declare victory over inflation.”
The Question of Suppressed Inflation
According to the experts, at least three types of government intervention are simultaneously at work behind the low statistical figure: food retail margin caps, protected fuel prices, and regulated utility prices. Péter Quittner stated that according to the MNB’s estimates, the inflation-reducing effect of margin caps amounted to roughly one and a half percentage points when introduced, but by now — due to declining producer and import prices, as well as corporate adaptation — the effect has diminished.
Several participants recalled the lessons of the 2022 fuel price cap: controlled prices increased consumption by one-fifth, while abolishing the cap reduced it by almost the same amount. Regarding food price caps, Éva Palócz (Kopint-Tárki) argued that the optimal timing for phasing them out would have been at the trough of agricultural producer prices — in her view, mid-summer would have been desirable, and the temporary impact on the annual price index would have amounted to 0.5–0.6 percentage points.
There was complete consensus regarding utility prices: most likely, even the next government will not touch household energy prices, because doing so would amount to political suicide. By contrast, Éva Palócz questioned the legitimacy of protected fuel prices: SUVs consuming 15 liters per 100 kilometers receive the same benefit as fuel-efficient vehicles — something that is neither socially justifiable nor compatible with climate-protection considerations.
MAIN FINDINGS OF THE ROUNDTABLE
- Measured inflation: 1.8% (KSH), but market-based, filtered core inflation is estimated at around 2–2.7%.
- Inflation expectations: Inflation perceived by households remains stuck around 5–6%; this is a worrying signal for monetary policy.
- Forint exchange rate: Analysts see the equilibrium level in the 353–375 HUF/EUR range; the strong forint is the main brake on inflation.
- Price caps and protected prices: One-third of the consumer basket is under some form of official regulation — this already violates the normal logic of economic functioning.
- VAT and special taxes: Behind the nominally “world champion” 27% VAT rate lie numerous discounts and exemptions; the effective tax rate is not outstanding in European comparison.
- Base-rate outlook: According to the consensus, the next move will be a cut; by the end of 2027, a level below 5% is realistic if fiscal policy and the ERM2 path remain consistent.
VAT and Special Taxes
The frequently cited “European record” 27 percent value-added tax rate requires a more nuanced interpretation, Péter Quittner pointed out. If one calculates the effective average VAT burden corrected for discounts and exemptions, the Hungarian figure comes to around 14 percent, which is no longer exceptional within the EU. Éva Palócz added that the retail special tax, by contrast, is a genuine price-increasing factor: it generates annual budget revenue of 320 billion forints.
Opinions were divided regarding the effectiveness of VAT reductions. The well-known asymmetry — whereby price increases are immediate after tax hikes, while the pass-through of reductions is extremely slow — has proven real based on previous experience. At the same time, when internet VAT was reduced, the discount immediately appeared on January bills, although the durability of the price reduction remains questionable. The relationship is therefore dependent on competition and sector-specific factors.
The Forint and the Exchange-Rate Turnaround
Analysts unanimously consider the dramatic strengthening of the forint — 10 percent within a short period — to be the most important factor behind low inflation. Gergely Tardos highlighted the paradigm shift in the MNB’s exchange-rate policy: the central bank replaced the decades-long practice of depreciation with a stable, and at times even strengthening, exchange-rate path. For a long time, the forint had been the only currency in the region weakening even in nominal terms.
Exchange-rate forecasts ranged between 353 and 380 HUF/EUR. According to Zsolt Becsey, the current exchange rate does not differ dramatically from equilibrium value, and the credibility of intentions to introduce the euro could permanently reduce the risk premium. Zoltán Farkas pointed out the deep gap between the original budget assumption of an exchange rate above 400 forints per euro and market reality.
“One-third of the consumer basket is now under official regulation — this violates the fundamental logic of how the economy functions.”
Interest-Rate Policy: When Could Cuts Come?
One of the central questions of the debate was how to interpret the coexistence of a 6.25 percent base rate and 1.8 percent inflation. Péter Quittner presented the MNB’s position: the central bank measures not backward-looking but forward-looking inflation trajectories over 5–8 quarters, and currently uncertainties in energy markets, the Iranian conflict, and the unknown timing of the withdrawal of margin caps together justify caution.
According to the consensus among analysts, however, the next step will still be a cut rather than a hike. Éva Palócz considered a base rate of around 5 percent likely by the end of 2026, and according to the experts, from a 2027 perspective — provided ERM2 accession and fiscal consolidation are coordinated — even a level below 5 percent appears realistic. Participants identified the return of EU funds, a clear deficit-reduction trajectory, and the easing of Middle Eastern energy-price tensions as prerequisites for launching a rate-cutting cycle.
The Croatian example emerged as a success story: the country, which became a eurozone member at the peak of inflation, has since achieved dramatically cheaper state financing and reduced its public debt from 86 percent to below 60 percent. At the same time, Gergely Tardos warned against simplistic analogies: Croatia’s tourism-dependent economy was exposed to very different shocks than industrial, export-oriented Hungary.
Summary: Inflation Living in People’s Minds
One of the strongest lessons of the debate was that the gap between statistically measured inflation and inflation perceived by economic actors is itself an inflationary risk. Households continue to expect price growth of around 5–6 percent, and an upward shift has also begun among businesses. As long as this level of expectations persists, the central bank will find it difficult to abandon its cautious stance — and real disinflation itself must therefore be regarded as fragile.
In his closing remarks, Péter Halmai emphasized that in a period of reassessment and replanning, it is particularly important for the profession to return regularly to these questions. In the coming period, the Department of Economic Policy and Economic Theory of the Hungarian Economic Association also plans deeper analysis of euro adoption and fiscal sustainability.
This summary was prepared on the basis of an edited transcript, by AI application.