Hungarian inflation rises back above central bank target in October
Inflation rises, forint down 7% vs euro in 2024
Central bank likely to stay on hold next Tuesday
Czech rate-setters also cautious amid inflation rebound
Romania's central bank held main rate steady last week
By Gergely Szakacs
Nov 12 (Reuters) -Hungarian inflation rose to an annual 3.2% in October, while core inflation remained outside the central bank's target band, raising the likelihood of the bank leaving its base rate steady at the European Union's highest level next Tuesday.
Hungary's headline inflation, which also scaled the EU's highest levels of more than 25% in the first quarter of 2023, briefly hit the central bank's 3% medium-term target last month, but rose again in October, with prices up 0.1% on the month.
Tuesday's reading, which came in below analyst forecasts for a 3.5% annual rise, was driven by higher food and services prices, which rose by 4.5% and 7.2%, respectively, the Central Statistics Office (KSH) said.
Czech inflation rose to its highest level since April, data showed on Monday, driven by strong growth in services prices, which may serve as an argument for the Czech National Bank to pursue a cautious approach to further rate easing as price growth is expected to be elevated in the next few months.
Poland, the region's biggest economy, will release October inflation figures on Friday, although its central bank is likely to avoid rate cuts until the first half of next year amid uncertainty over household energy price subsidies.
While Hungary's economy dipped back into a technical recession in the third quarter, rising inflation and falls in the forint, which plumbed its weakest levels in 22 months last week, will likely limit manoeuvring room for policy makers.
The forint has fallen some 7% versus the euro this year, by far the worst in central Europe, with the Czech crown easing just 2.6% and the Polish zloty holding steady for the year, bolstered by stable rates and an inflow of billions in EU funds.
The Hungarian central bank has repeatedly warned that the impact of currency falls on inflation has increased, probably serving rate-setters with additional arguments to err on the side of caution when they discuss policy next week.
The bank, which paused rate cuts indefinitely at 6.5% last month amid falls in the forint, will hold its monthly rate meeting on Nov. 19.
Even after cuts totalling 11.5 percentage points since May 2023, Hungary's benchmark interest rate is the highest in the EU alongside that of neighbouring Romania, whose central bank also left its main rate steady last week, as expected.
The bank has held off on further rate cuts due to inflation risks and uncertainty over the fiscal stabilisation plans of a new government to emerge after a Dec. 1 election, which is widely-expected to raise taxes to curb the budget deficit.
Reporting by Gergely Szakacs; Editing by Kim Coghill
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