Inflation in Hungary

Inflation is one of the major problems to solve in the Hungarian economy

Inflation for an individual means the rise of costs of living, and something against one can not defend himself. Pensioners are the most touched by inflation, as their rents are not indexed to the inflation.

But the governments not only have to cope with such social problems, but they have to fulfil macroeconomic aims as well. They want to achieve economic growth, but in the case of Hungary the high and capricious inflation causes uncertainty, that is why there is a low level of investments.

The aim would be to decrease this inflation so that it would be a one-figure number, which would mean a natural rate of inflation.

Inflation in Hungary has 3 stages in the 1990-1997 period, which reflect the different stages of economic policy.

 These are:

  1. 1990-1991
  2. 1992-1994
  3. 1995-1997

Let us see now how it looks on this diagram (Diagram included in Appendix)

  1. 1990-1991: in this period the inflation of CPI and PPI grew rapidly and it reached its highest point in September 1991. Inflation was 38,6% by then.
  2. After September 1991 there was a year of dezinflation, then one year of stable of stable inflation growth, after which the inflation grew rapidly again in1994. The main characteristics of this period was that the CPI was mostly 10% bigger than the PPI inflation.
  3. In the beginning of the 3rd period the inflation accelerated, it nearly reached its 1991 September level, then it was followed by stable dezinflation. The inflation of CPI was very similar to the inflation of PPI
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So let us see the three periods one by one:

  1. 1990-1991

In 1990-1991 the main goal of economic policy was to avoid an external debt crisis in Hungary

It was threatening to happen because if 3 reasons:

  1. the liquidation of CMEA/COMECON
  2. followed by rapid growth of oil prices
  3. the collapse of Eastern European Trade

The stabilisation policy contained the clamp down of budgetary and monetary policy and two serious devaluation of the Forint.

The implements of the monetary policy were the adjusting of the inland credits, and decreasing the real credits for the industrial sector, although ...

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