Drivers of Inflation: Hungary
Selected Issues Papers, February 26, 2023
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- Drivers of Inflation: Hungary
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Bibliographic details
- Authors: Estefania Cohn-Bech, Karim Foda, Agustin Roitman
- Published: February 26, 2023
- Series: Selected Issues Papers
Summary
- 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.
- The paper examines how and why Hungary reached historically high inflation by drawing on an augmented Phillips Curve, assessing labor market tightness and policy stances, and analyzing possible changes to the degree of exchange rate pass-through in recent years.
- Overall conclusion: 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.
- Current situation: monetary and fiscal policies are now tightening, but regulatory price caps undermine those efforts.
- Recommendation: a consistently and persistently tight overall policy mix is needed to drive inflation back to the central bank’s target.
Methods and Analytical Framework
- Uses an augmented Phillips Curve to estimate the impact of common drivers of inflation.
- Examines the role of labor market tightness in inflation dynamics.
- Analyzes possible changes to the degree of exchange rate pass-through in recent years.
Key Findings and Drivers
- Rapid recovery from the COVID-19 crisis contributed to upward inflationary pressure.
- A series of exogenous shocks amplified inflationary dynamics.
- A too loose policy mix prior to tightening was an important driver of historically high inflation.
- Regulatory price caps currently act to undermine tightening policies and complicate disinflation efforts.
Policy Implications and Recommendations
- Monetary and fiscal tightening are underway and necessary.
- Regulatory interventions that cap prices weaken the efficacy of macroeconomic tightening and should be reconsidered.
- Persistent and consistent overall policy tightness is necessary to restore inflation to the central bank’s target.
Publication and Metadata
- By Estefania Cohn-Bech, Karim Foda, Agustin Roitman
- February 26, 2023
- Series: Selected Issues Paper No. 2023/004
- Pages: 22
- ISBN: 9798400234163
- ISSN: 2958-7875
Source: IMF — Drivers of Inflation: Hungary
Content in this bundle
- Drivers of Inflation: Hungary; Selected Issues Paper No. 2023/004; January 17, 2023