(Bloomberg) -- Hungary’s inflation rate slowed more than expected, bolstering the case for the central bank to resume interest-rate cuts.
Consumer prices rose an annual 3.4% in August, the slowest pace in 3 1/2 years, according to data published by the statistics office on Tuesday. That compares with headline inflation of 4.1% in July and a 3.6% median estimate of 22 economists in a Bloomberg survey.
Hungary’s central bank paused its rate-cut cycle in August after 15 consecutive monthly cuts, following a spike in inflation. The government and the central bank have been at loggerheads over the pace of easing, with Economy Minister Marton Nagy on Monday saying that inflation concerns were overdone as price-growth has been “defeated” for good.
“The fresh inflation data definitely opens the way for Hungarian monetary policy to cut the key rate by 25 basis points in September,” said Peter Virovacz, an economist at at ING Bank Hungary. He said extending the rate pause also remained a “realistic option.”
The central bank targets 3% inflation, with a 1 percentage-point tolerance band around the goal. Prices were unchanged month-on-month while annual core inflation, which strips out volatile food and energy price swings, stood at an annual 4.6%.
In addition to price trends, expected rate cuts this month by the US Federal Reserve and the European Central Bank, as well as risk assessment and economic confidence will determine when Hungary can resume easing, Deputy Governor Barnabas Virag said on Aug. 27.
He said a quarter-point cut and a no-change decision will be weighed at each rate meeting this year. Last month, the central bank kept its key rate at 6.75%, the highest benchmark in the European Union.
Complicating the decision is the forint, which has dropped 1% against the euro to the weakest level in a month since Bloomberg reported that Prime Minister Viktor Orban may ditch budget-consolidation plans in the run-up to the 2026 elections. Orban over the weekend outlined spending steps for next year though said he would keep public finances stable.
The forint was down as much as 0.2% against the euro on Tuesday, dropping for a third trading day.
“While the favorable data” for inflation “may raise the case for the central bank to loosen policy at its next meeting, this is best avoided given the overall picture,” Janos Nagy, an analyst at Erste Group Bank in Budapest, said in a note to clients. He urged “continued caution” from the central bank to stem risks.
(Adds chart, analyst comments in fourth and last paragraphs, forint in ninth.)
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