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Retail

Hungarian Inflation Rises At Fastest Pace Since 2007

Hungarian consumer prices grew at their fastest rate in almost 15 years in January and core inflation surged above expectations, data showed on Friday, supporting the case for further interest rate hikes.

The National Bank of Hungary lifted its main rate by 50 basis points to 2.9% at the end of January, the biggest increase in over a decade.

It has said it expected core inflation to pick up and has been monitoring companies re-pricing goods and services as they contend with soaring costs for materials or wages as well.

Headline inflation picked up to a rate of 7.9% year-on-year in January, the highest since August 2007 and defying expectations for stagnation around 7.4% posted in December.

Core Inflation

Core inflation, done under new methodology, jumped a percentage point to 7.4% and was above a Reuters poll forecast of 6.5%.

The data on Friday showed underlying pressure increasing 'drastically', according to ING economist Peter Virovacz.

"This is shocking. The fact that within three months core inflation rose from around 5% to 7.4% speaks volumes," he said.

"The supply-side shocks are leading to second-round effects, and this is probably also the case with brutal wage hikes."

Inflation around the region is being driven by external factors such as global supply disruptions and rising material and energy costs, along with domestic drivers such as tight labour markets that are pushing up wages and keeping consumers confident.

Read More: 'The Worst Is Yet To Come' On Food Inflation, Tesco Chairman Warns

Government Measures

Hungary's government decided last month to cut the price of six basic food items, extending price caps already in place for energy, fuel and mortgages ahead of an April national election.

Price growth continues to rise and Virovacz said the bank may have to move higher on policy rates than previously thought.

The Hungarian data is a first glimpse of price pressures around the region.

In the Czech Republic, the central bank has estimated inflation rising past 9%, or possibly even 10%, as rising energy bills hit to begin the year. It raised its base interest rate to 4.5%, a 20-year high, last week.

News by Reuters, edited by ESM. For more Retail news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.

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