Consumer prices in Hungary continued to rise in July, reaching the highest level since 1998, even though the central bank in Budapest has already adopted the largest increase in the base interest rate in the European Union, Bloomberg reported, citing Agerpres.

Official data released on Tuesday by the National Institute of Statistics showed that consumer prices registered an annual increase of 13.7% in July, following a rise of 11.7% in June, mainly as a result of a 27% rise in food prices.

Core inflation, which is the inflation that remains after the price of volatile goods such as energy and food, recorded an even bigger increase of 16.7%, showing how widespread inflationary pressures are in the economy.

The National Bank of Hungary (NBH) has raised its key interest rate by more than 800 basis points this year, including several cumulative 200 basis point hikes last month, as policymakers try to keep inflation under control and support the forint.

The Hungarian currency is the third worst performing currency since the Russian invasion of Ukraine, depreciating by more than 8% against the euro.

Inflation is high in Hungary, although food prices continue to be constrained

“The central bank has no choice but to continue the rate hike cycle with decisive steps,” said Marianne Trippon, an economist at CIB Bank in Budapest. He predicts the NBH base rate will reach 13% by the end of the year, up from 10.75% now.

Analysts believe that the worst is yet to come in terms of prices.

While inflation was dominated by food prices in July, with bread and cheese prices rising by more than 50% year-on-year, things are set to change in the coming months, when the focus is on energy prices.

Fuel price caps that have made Hungary the EU country with the lowest prices for petrol and diesel are being phased out as Viktor Orbán’s government tries to cut costs and deal with a possible energy crisis.

This decision may lead to more than 20% annual inflation in the fall, Marianne Trippon estimates.

Instead, Viktor Orban’s government decided to extend the limit on food prices until the fall in mid-June.