Headline inflation rose slightly by 0.2ppt to 3.2% year-on-year in October, below expectations. Services prices fell by 0.9% month-on-month, partly due to cheaper “other travel” (airfares) and health services, but the downside surprise was mainly due to an unexpected fall in telecommunication services prices (-6.8% MoM). However, it may be that this only reflects the impact of the free data packages offered during the September floods. If this is the case, then it was a one-off event that may re-accelerate inflation next month. Nevertheless, looking at the data, the picture is satisfactory in the short term, but there is a lot of uncertainty in the medium term, for example due to the expected high wage increase next year. All in all, the short-term inflation situation in itself could even have opened the door to an easing, but taking other factors into account, this is clearly no longer the case.
As far as risk perception is concerned, the National Bank of Hungary sees this through the lens of fiscal developments and external balances. The October budget deficit was the second largest since 2002, but this could also be a one-off event due to the September floods. The government has published the draft budget for 2025, which aims to maintain the previously telegraphed deficit level of 3.7% of GDP, and it looks more or less realistic, although we could point to several risks. On the external balances side, we haven’t seen any significant deterioration from recent trends. All in all, risk perceptions alone won’t play a major role in the decision-making process this time.