National Economy Minister Marton Nagy in a social media post on February 10 has hinted that the government may reintroduce price caps to protect households from rising prices.

The comments came just a day before the Central Statistical Office (KSH) is set to release the January inflation figures, which are expected to show further acceleration of the headline data. Inflation picked up from 3.7% in November to 4.6% in December, which was the second-highest among EU countries and the highest level for 2024 in Hungary, bouncing back from the September’s low of 3%.

The rise in the CPI for January is driven by new taxes, higher excise duties, a weaker forint and rising service prices.

The government put a price cap on fuel in November 2021 and a few months later on basic food staples. These measure led to supply shortages, market distortions, and ultimately higher inflation.

Analysts have warned against the reintroduction of price caps for similar reasons.

MNB Governor Gyorgy Matolcsy has repeatedly criticised the government for taking "unorthodox measures" to fight inflation, specifically citing price caps, which in his view has added 3-4pp to inflation in 2023, when inflation averaged 17.6%.

Cumulative inflation between 2020 and mid-2024 in Hungary exceeded 50%, double the EU average and some 10pp higher than second-ranked Estonia.

The food retailer association blamed higher supplier prices and the sharp increase in the price of egg was the result of bird flu.

A week ago, outgoing Monetary Council member Gyula Pleschinger projected that inflation may exceed 5% in January. In an interview with Reuters, the central banker in post until March 2025, projected that inflation will only return to the central bank's tolerance band of 4% by year-end, with inflation averaging 4.1-4.2% in 2025, which is higher than the MNB's current target and is some 1pp above the government's 3.2% forecast.

He also ruled out the central bank would cut rates from 6.5%, whereas the markets had priced in at least a 50bp cut in the second half. The hawkish comment drove the HUF/€ currency pair to below 405, its strongest level in three months.