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Drivers of Inflation: Hungary
Author: Estefania Cohn-Bech, Karim Foda, and Agustin Roitman1
  • 1 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund
Series:
Selected Issues Papers
Volume/Issue:
Volume 2023: Issue 004
Language:
English
Publication Date:
26 Feb 2023
DOI:
https://doi.org/10.5089/9798400234163.018
ISBN:
9798400234163
ISSN:
2958-7875
Pages:
22
Keywords:
Inflation; Hungary; Macroeconomic policy coordination; food inflation; B. inflation driver; drivers of inflation; producer price inflation; inflation in Hungary; Energy prices; Labor markets; Producer prices; Europe; Global
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IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodic consultations with member countries. It is based on the information available at the time it was completed.
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Though high and rising inflation has been a challenge for most economies across Europe in 2022 and into 2023, it has accelerated in Hungary to the highest level in Europe. This paper examines how and why Hungary reached historically high inflation. It draws on an augmented Phillips Curve to estimate the impact of common drivers of inflation, examines the role of labor market tightness and policy stances, and analyzes possible changes to the degree of exchange rate pass-through in recent years. Overall, a rapid recovery from the COVID-19 crisis, a series of exogenous shocks, and too loose a policy mix fueled inflation to its highest level in decades. Though monetary and fiscal policies are now tightening, regulatory price caps undermine those efforts. Going forward, a consistently and persistently tight overall policy mix is needed to drive inflation back to the central bank’s target.

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Cover Selected Issues Papers
Selected Issues Papers
Publisher:
International Monetary Fund