Inflation laps at shores of Lake Balaton as Hungary readies for rate hike
By Gergely Szakacs
BUDAPEST, June 16 (Reuters) - As Hungary's central bank braces to be the first in the European Union to hike its interest rates since the pandemic, nowhere are the inflationary pressures that are building more tangible than in the cost of a room at Lake Balaton, a favourite holiday spot.
Headline consumer price growth at 5.1% has already overshot the central bank's target over the past two months, while inflation expectations have crept steadily higher over the past years as price growth accelerated and the forint weakened.
Hoteliers say room prices near central Europe's biggest lake can rise by up to 15% in the peak holiday season in July and August as hotels seek to recoup some of their COVID-induced losses while grappling with surging costs and higher wage bills due to a labour shortage.
"The 4% to 5% inflation figure is not a coincidence," said Csaba Baldauf, deputy chairman of the Hungarian Hotel and Restaurant Association. "There is a very strong tendency of price increases, which is also affecting the hotel sector."
"Essentially there is no area where we do not see substantial cost rises," he said, adding that early bookings showed a mixed picture as hotels could only accept guests already vaccinated against or recovered from COVID-19.
Having endured more than a year of on-and-off lockdowns, however, some Hungarians, their wallets padded by wage rises running at an annual average of nearly 10%, are willing to spend substantially more on a domestic summer holiday this year.
Booking website operator szallas.hu said the average value of bookings around Lake Balaton has increased by more than half from last year, with holidaymakers either opting to stay longer or selecting more expensive lodgings.
RATE HIKES COMING
Governor Gyorgy Matolcsy said last week that the central bank would launch a rate rise cycle at its June 22 meeting to prevent a sustained rise in inflation, which could jeopardise Hungary's recovery from the pandemic.
Some economists expect the bank to raise its base rate as much as 30 basis points next week, its first hike in nearly a decade.
Andrea Radoczy, head of the Balaton region at the Hungarian Hotel Association, said bookings for July and August were now on a par with those seen in the 2019 summer season before the pandemic, with around 80% of rooms already booked.
While foreign tourists are scarce, one survey commissioned by the Hungarian Tourism Agency showed seven out of 10 Hungarians planned domestic holidays over the coming months instead of favoured destinations like Croatia.
However, Radoczy said not all hotels may be able to pass on the substantial increases in food prices, wage bills and higher hygiene costs to customers this year as it may take some time for the market to fully recover from the pandemic.
Recent surveys though indicate that Hungarians may be growing accustomed to steeper price rises.
A poll by think tank GKI published last month showed households' inflation expectations increased substantially, while the central bank's latest monthly assessment put the range of inflation expectations between 3% and 8%.
The bank says some of that is due to sharp price rises in frequently purchased goods, such as food or fuel, which can distort perceptions. Even so, inflation expectations have been rising steadily since 2017 based on its figures.
"With services and food inflation moving higher in the coming months, core inflation is expected to move north," said economist Peter Virovacz at ING.
"Upside risks are still there," he said. "With all of these pipeline pressures, the central bank needs to stick to its playbook, at least in the short run." (Reporting by Gergely Szakacs; editing by Emelia Sithole-Matarise)
