Hungarian prices drop at fastest rate in 46 years

BUDAPEST, Oct 11 (AFP) : Hungary's annual inflation sank to -0.5 per cent, the lowest level since 1968, official data showed Friday, mainly due to government-mandated household utility price cuts.
While Hungary is not part of the eurozone, many EU countries have shared in the currency bloc's drop to ultralow inflation that officials worry could turn into a dangerous deflationary spiral.
In the case of Hungary, which just two years ago had the EU's highest inflation rate at 5.6 per cent, the drop in prices is mainly due to government measures.
Prime Minster Viktor Orban's right-wing government, elected in 2010 and re-elected last April, has forced utility providers to cut prices.
Government-mandated energy prices-an essential feature in Prime Minister Orban's policies, often seen as a populist-have helped push headline price growth to well below the central bank's medium-term target of 3 per cent.
"The decline in prices was driven by an annual 12 per cent fall in household energy prices and base effects," Borbala Minary of the national statistics office KSH said on Friday.
Zoltan Reczey, an analyst at Buda-Cash Brokerhouse, was quoted by MTI new agency as saying "the dominant factor in deflation was the effects of the government-mandated energy price cut."
Gergely Gabler, an analyst at Erste Group Research, estimated that inflation could return in December, but until then it will remain in the negative territory, according to MTI.
The fall in prices comes as European Central Bank President Mario Draghi renewed Thursday in Washington his vow that he will combat deflationary forces.
A sustained fall in prices can cause consumers to postpone purchases in the expectation goods will become cheaper, causing a slump in the economy and job losses that is extremely difficult to reverse.
The Hungarian central bank forecasts average inflation of 0.1 per cent this year and 2.5 per cent for 2015.
With non-eurozone Poland cutting interest rates this week in order counter its flat inflation rate, Hungary's central bank could be pushed into doing so as well although it had indicated it would leave its key rate at 2.1 per cent until the end of the year.