Hungary: Low inflation opens path for rate cuts – ING

ING economists Peter Virovacz and Zoltán Homolya note that Hungary’s January inflation fell sharply to 2.1% year-on-year, below the National Bank of Hungary’s 3% target. Core inflation also dropped under target, helped by price shield measures and a strong Forint. They argue this boosts the likelihood of 25bp rate cuts in February and March, with average 2026 inflation now seen closer to 3%.

Low CPI strengthens case for easing

"Hungary's inflation rate fell sharply in January 2026, according to recent data released by the Hungarian Central Statistical Office (HCSO). This time, favourable developments can be seen in almost every aspect. The year-on-year inflation rate of 2.1% was lower than the market consensus but came close to our forecast."

"The core inflation rate, which is adjusted for volatile items, also developed favourably, falling to 2.7% on a yearly basis. This is the first time since January 2019 that both core and headline inflation rates have fallen below the central bank's 3% target. Of course, we know that low inflation is partially artificial due to the government’s price shield measures and some delayed tax and excise duty hikes."

"However, if these low inflation prints are maintained in the coming months, then consumer inflation expectations may finally start to decline significantly, in our view. This is particularly likely if inflation continues to moderate further in February, as we expect it to hit the 1.5% mark (or come close to that). Furthermore, the indicator may remain low in the coming months as price shield measures have been extended by three months once again."

"Based on this, the expected reacceleration in inflation will also be delayed until later in 2026. This means that inflation is increasingly likely to average around 3% for the year as a whole, in contrast to our recent 3.3% forecast."

"Headline and core inflation falling below 3% in January, favourable service inflation, extended price measures, a strong forint and the market pricing in interest rate cuts in February and March clearly set the direction for monetary policy. In our opinion, the central bank may cut the base rate by 25bp in both February and March. The only case we see this not materialising is if another significant geopolitical event causes a sustained weakening of the forint in the coming weeks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)