Hungary Inflation Slows More Than Forecast on Tax Effect

Hungary’s inflation rate dropped more than forecast to the lowest in 16 months in January as value-added tax increases from a year ago faded from the index, adding to arguments to keep cutting borrowing costs.

The inflation rate was 3.7 percent in January, the lowest since September 2011, the Budapest-based statistics office said today. The median estimate of 18 economists in a Bloomberg survey was 3.9 percent. Prices rose 0.8 percent from December.

Outgoing central bank President Andras Simor has been outvoted along with his two deputies on rate cuts by non-executive members who want to spur an economy battling its second recession in four years and who forecast meeting policy makers’ 3 percent inflation target in the medium-term. The bank on Jan. 29 lowered the two-week deposit rate by a quarter-point for a sixth month to 5.5 percent, the lowest since 2010.

The drop in the January inflation index was primarily caused by the high base from a year ago due to value-added tax increases, statistician Borbala Minary told reporters today. The effects of a 10 percent cut in household energy prices from Jan. 1 will show up in the inflation rate next month, she said.

Before it's here, it's on the Bloomberg Terminal.