Hungary: Selected Issues

IMF Staff Country Reports, February 3, 2023

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Hungary: Selected Issues

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Bibliographic details

• Published: February 3, 2023
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400231506.002

Overview and scope

• Publication date: February 3, 2023
• Pages: 46
• Issue: 071
• Series: Country Report No. 2023/071
• Volume: 2023
• DOI: https://doi.org/10.5089/9798400231506.002
• Stock No: 1HUNEA2023002
• ISBN: 9798400231506
• ISSN: 1934-7685
• Format: IMF Staff Country Reports

Main analytical focus

• Examines how and why Hungary reached historically high inflation.
• Places particular attention on cross-country comparisons to understand where Hungary may stand out.
• Focus on domestic drivers that could help explain stronger inflationary pressure in Hungary.
• Methodology highlights:
  • Overview of inflation developments over the last two years.
  • Use of an augmented Phillips Curve to estimate the impact of common drivers of inflation.
  • Examination of the role of labor market tightness and policy stances.
  • Analysis of possible changes to the degree of exchange rate pass through in recent years.
• Outcome: exploration of risks to the inflation outlook and policy recommendations drawn from the findings.

Key findings and dynamics

• Inflation has reached historically high levels in Hungary (documented across the analysis).
• Core findings highlight:
  • Inflation expectations are de-anchored.
  • Core inflation dynamics remain strong.
  • A tight labor market is contributing to persistent domestic inflationary pressures.
  • The lag-effect of prior loose monetary and fiscal policies has boosted domestic demand, reinforcing inflation.
• Empirical strategy includes estimating impacts of common inflation drivers via an augmented Phillips Curve and assessing exchange rate pass-through changes.

Policy implications and recommendations

• Despite recent tightening, both monetary and fiscal policies need to be consistently and persistently tight to return inflation to the central bank’s target.
• Policy mix recommendation:
  • Maintain a consistently and persistently tight overall policy mix.
  • Address de-anchored inflation expectations and strong core inflation dynamics by sustaining restrictive settings until convergence toward the inflation target is achieved.

Subjects and keywords

• Subject areas: Asset and liability management, Central bank policy rate, Central banks, Financial institutions, Financial services, Inflation, International organization, Liquidity, Monetary operations, Monetary policy, Mortgages, Prices
• Keywords: B. inflation driver, Central bank policy rate, Europe, food inflation, Global, Inflation, inflation in Hungary, Liquidity, Monetary operations, monetary policy stance, Mortgages, policy stance indicator, producer price inflation

International Monetary Fund. Hungary: Selected Issues, IMF Staff Country Reports 2023, 071 (2023).

Content in this bundle

• Hungary: Selected Issues; IMF Country Report No. 23/71; January 17, 2023
  • Hungary: Selected Issues; IMF Country Report No. 23/71; January 17, 2023 (Markdown version)
  • Hungary: Selected Issues; IMF Country Report No. 23/71; January 17, 2023 (PDF)