Hungary's inflation rate ticked up again in October, and that could keep the country's central bank from cutting interest rates until next year, according to Reuters. The latest data shows prices rose 2% in October, up from 1.6% in September and slightly above the 1.9% median forecast in a Reuters poll.
The increase was driven by a sharp jump in fuel prices and higher services costs, categories that can have a lasting effect on the broader economy. Fuel prices rose 11.3% year-on-year, while services costs climbed 5.2%. These are not one-off blips: they feed into transport, travel, and wage negotiations, which can keep inflation elevated for longer.
Core inflation also accelerates
Stripping out volatile items like food and energy, "core" inflation also quickened, to 2.1% versus expectations for 2%. Core inflation is closely watched by central banks because it gives a clearer picture of underlying price pressures, excluding temporary swings.
The timing is important. Hungary's central bank lowered its inflation target to 2.5% from 3% in September. That means any upside surprise now leaves less room to ease policy without looking complacent. With the target closer, policymakers need clearer evidence that inflation is heading down for good before they risk trimming rates.
Markets push back rate-cut bets
Investors have reacted by pushing back their expectations for rate cuts. Markets are pricing a 93.2% chance of no change at next Tuesday's meeting and a 74.8% chance of another hold in December. That suggests the central bank is likely to keep its base rate at 5.50% for now.
For everyday investors, the key shift isn't just October's inflation bump; it's that the central bank has reset what "success" looks like by lowering its target. When the target is closer, policymakers need more convincing evidence that inflation is on a sustainable downward path before they ease policy.
What it means for investors
For markets, Hungary's 5.50% base rate looks harder to cut with a 2.5% inflation target. That tends to keep short-term Hungarian interest rates—the ones that shape money-market pricing and short-dated government bonds—higher for longer. For companies and households that borrow off short-term benchmarks, that usually means funding costs stay elevated until inflation momentum cools, not just until a single month comes in softer.
Investors will be watching next week's rate decision closely, as well as any signals about the path for 2025. If inflation continues to surprise to the upside, the central bank may hold rates steady well into next year. Conversely, if fuel and services price pressures fade, there could still be room for cuts later.
For now, the message from the data is clear: Hungary's fight against inflation isn't over, and that means borrowing costs are likely to stay higher for longer.
