By Zoltan Simon, Bloomberg Markets Live reporter and commentator
Hungarian inflation accelerated toward one of the European Union’s highest levels as a deepening rift between Prime Minister Viktor Orban and the central bank raised questions about economic policy.
Consumer prices rose an annual 22.5% in November, exceeding the median estimate of 22% in a Bloomberg survey, according to the Budapest-based statistics office. That compares with a 21.1% jump in October, when Hungarian price growth was already the third-worst in the EU.
Central bank Governor Gyorgy Matolcsy warned lawmakers this week that Hungary was on the brink of an economic crisis — and possibly a prolonged period of stagflation with anemic growth and high inflation — as various price controls under Orban’s rule collide with “the basic rules of the economy.”
The November price surge didn’t take into account the effects of the removal of a fuel price cap following a nationwide gasoline shortage. The measure, in place for more than a year, buckled under a spike in demand, a drop in supply and maintenance work at Hungary’s only refinery, which cut domestic output almost in half.
The scrapping of the fuel cap may add 2 to 2.3 percentage points to headline inflation, much of it from December onward, Portfolio news website reported, citing estimates from Economic Development Minister Marton Nagy.
He also announced late Wednesday a 1.5 trillion forint ($3.8 billion) subsidized corporate loan program to avert a recession, offering forint loans at a maximum of 5% interest.
It’s the latest step that may undermine central bank policy aimed at reining in inflation with a key interest rate at 18%, by far the EU’s highest.
Despite a removal of the fuel price cap, which raised prices at the pump immediately by as much as 46%, other caps remained in place including some food staples, mortgages and student loans.
The government had forecast an inflation peak of 25% before the removal of the price cap. Matolcsy said price growth may average between 15% to 18% in 2023, which he said would be the EU’s worst.