With soaring energy costs and the war in neighbouring Ukraine fuelling further price pressures, the National Bank of Hungary (NBH) faces the challenge of fighting persistent inflation while maintaining momentum in the Hungarian economy.
The NBH has said that inflation, which was running at 9.5% year-on-year in April, its highest level since June 2001, was expected to rise further in coming months and average between 9% and 10% this year.
GKI said in its monthly survey on Monday that business confidence dropped by 5.5 points while consumer confidence plunged by 9.5 points in May, after a rise in April.
"Consumers' inflation expectations strengthened again in May after a weakening in April," GKI said.
"Since the outbreak of the Ukraine-Russia war companies and consumers have been very pessimistic about the future of the Hungarian economy, and this pessimism intensified a lot in May."
Companies were planning price rises, albeit to a slightly less extent than in April. Customers turned more pessimistic about their financial and savings prospects in May.
Since last June the NBH has hiked its base rate by 450 bps to 5.4%.
Credit demand is expected to slow in Hungary according to the NBH, which still projects 2.5%-4.5% GDP growth for 2022 after a very strong first quarter.
(Reporting by Krisztina Than; Editing by Christopher Cushing)