Hungary’s inflation rate fell to 2.1% year-on-year in January 2026, according to the Hungarian Central Statistical Office. This was below the National Bank of Hungary’s 3% target and below market expectations. Core inflation, which strips out more volatile items, dropped to 2.7% year-on-year. This was the first time since January 2019 that both headline and core inflation were below 3%.

Drivers Of The Inflation Surprise

The weaker-than-expected data were tied to government price-shield measures, a stronger forint, and delayed tax and excise duty increases. The price-shield measures were extended again for three months. The text forecast inflation of about 1.5% in February. If these low readings continue, the expected rebound in inflation could be pushed back to later in 2026. Average inflation for 2026 now looks more likely to be around 3%, versus a previous 3.3% forecast. The text also said 25bp base-rate cuts in both February and March were possible, unless a geopolitical shock weakens the forint. January inflation came in much lower than expected at 2.1% year-on-year. With core inflation also down to 2.7%, both measures are now clearly below the central bank’s 3% target for the first time since early 2019. This supports the view that disinflation is strengthening and that policy can shift. This low print increases the chance that the National Bank of Hungary (NBH) continues its easing cycle. We now see a high likelihood of 25 basis point cuts at both the February and March meetings, especially if inflation drops toward 1.5% next month. This also fits with market pricing, which has pointed to a more dovish central bank for weeks.

Trading Risk And Hedging

For interest-rate traders, this may favor receiving fixed on short-dated swaps, as the front end of the yield curve could move lower. Forward Rate Agreements (FRAs) for the months ahead may also be attractive, since they can directly reflect expected policy-rate cuts. In the easing cycle that began in 2023, the front end re-priced quickly after dovish surprises. Rate cuts usually weigh on a currency, but the forint has held up, helped by Hungary’s improving external balance through 2025. Still, as the rate gap versus the Eurozone narrows, traders may want to consider EUR/HUF call options. This provides exposure to a weaker forint while limiting losses if the currency stays stronger than expected. The broader economic backdrop also supports this path. Q4 2025 GDP growth was still weak at 0.9%. The government’s extension of price shields on certain goods, while temporary and artificial, also keeps near-term inflation lower. That gives the NBH more room to cut, similar to the early stage of the 2024 easing cycle, when the base rate was steadily reduced from its 13% peak. The biggest risk to this dovish view is a sudden rise in geopolitical tensions. The forint often reacts sharply because it is seen as a regional risk currency. Any escalation in the Ukraine conflict, for example, could trigger a flight to safety and force the central bank to pause cuts. For that reason, it is important to monitor implied volatility in the forint. Create your live VT Markets account and start trading now.

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