Forint enjoys slight relief as external inflation drivers are becoming more supportive – Commerzbank

The Hungarian Forint underwent significant volatility in recent weeks, but staged a rally on Friday following encouraging CPI data. External factors are becoming more supportive, economists at Commerzbank note.

Inflation data once again encourages

“Overall, the data strengthened earlier tentative indications that inflation peaked last autumn.”

“The crucial issue remains how much inflation will slow down after having peaked. The government has used minimum wage hikes liberally to neutralise the effect of high inflation on purchasing power; this will add layers of second-round inflation over the coming year. This will come against a background of Hungary’s deeply negative real interest rate, which will not help combat second-round effects.”

“Forint is enjoying slight relief because external inflation drivers are becoming more supportive. Whether this will be enough to close the monetary policy gap or remain a structural problem, only time will tell.”