Inflation will rise again in 2024 - we show what will happen to real wages!

Inflation will temporarily rise again in 2024, while purchasing power of wages will increase by 7.1%. GDP could grow by 2.4 percent this year and by more than 3 percent next year. As the economy recovers, the unemployment rate in Hungary will fall again this year, according to the Institute for Economic Balance's forecast.

Idén újra nő az infláció - és a reálbérek?-

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The Balance Institute forecasts GDP growth of 2.4 percent this year and 3.1 percent in 2025. The think tank expects household consumption and investment to be the drivers of Hungarian growth.

With the German economy weakening and imports rebounding, the previous significant contribution of the trade balance to GDP growth is expected to disappear over the next two years.

The think tank expects inflation to rise again from the second quarter before starting to fall again from the beginning of 2025. However, the Balance Institute expects that, despite the temporary rise in prices, partly due to the base effect and backward-looking pricing, most factors will continue to point towards moderate inflation in the longer term.The Institute for Balance forecasts average price increases of 4.6 percent in 2024 and 3.1 percent in 2025.For food, a more moderate increase than overall inflation is expected in 2024 due to global food price trends and a favourable domestic harvest.

Based on the Institute for Balance forecast

The Balance Institute says monetary policy is tight both by past decades and by regional standards, with high real interest rates and an overvalued euro-for-euro exchange rate.The think tank says that while the state of the real economy would allow the central bank to accelerate the pace of the rate-cutting cycle, the high interest rates are explained by the greater emphasis of monetary policy on exchange rate stability. At the same time, the depreciation of the forint is set to continue. The Balance Institute forecasts that the average euro exchange rate will hover in the range of 395-400 forints in 2024 and 410-419 forints in 2025.

The Balance Institute forecast says

Employment continued to grow in the first quarter of 2024, with 4.72 million people working in the economy. Unemployment fell again in March, while the economic activity rate was at an all-time high.Although declining, the labor market remained tight; thus, as the economy recovers, the forecast is for employment to expand by 0.7 percent per year in the coming years. The Institute expects real wages to rise again by 2024, with real wages in the competitive sector expected to grow by 7.1 percent in 2024, due to tight labor market conditions and a pickup in the economy. The think-tank's economic forecast is for the unemployment rate to be 4.3 percent in 2024 and 3.9 percent in 2025.

While real wages have been rising again since the second half of 2023, households have increased their savings rather than consumption. By the fourth quarter of 2023, the gross saving rate of households had risen to 21.6 percent. In 2024, with real wages rising again as the economy recovers and the propensity to consume increasing, household consumption could be on an upward path again. The Institute expects consumption to grow by 2.7 percent in real terms this year and 3.5 percent in 2025. The lower-than-expected recovery in consumption has put the budget in a difficult position, with the budget deficit reaching 6.7 percent in 2023.

The deficit will not fall below 3 percent this year either, as this would jeopardize the government's growth targets: the think tank says the deficit could exceed 5 percent of GDP.