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Hungary was severely impacted by the previous energy crisis in 2022–2023. The closure of the Strait of Hormuz has disrupted global energy supplies and sharply increased oil price forecasts. Recent polling taken prior to the election shows that even three years later the economy remains a top issue for Hungarian voters. In a new paper, Philip Pilkington, Senior Research Fellow at the Hungarian Institute of International Affairs, examined the possible effects of a new energy shock on Hungary.
“We model the impact of the energy crisis on the Hungarian economy over the next 12–18 months. We find that inflation could rise from 2.1 percent today to anywhere between 34 percent and 59 percent in July 2027. This compares with the previous inflationary peak of 26 percent in January 2023. We also find that the forint–euro exchange rate (HUF–EUR) could fall anywhere between 17 percent and 31 percent compared to the previous decline in the value of the forint in the last energy crisis between February and October 2022 of 15 percent,” the study reads.
As the energy crisis draws closer it is becoming increasingly clear what the impact on the economy will likely be. My work on the Hungarian economy shows the shock will be substantially larger than the 2022-23 cost of living shock. This is the big one. Link in comment.
pic.twitter.com/bUvfx6mZbd
— Philip Pilkington (@philippilk) May 14, 2026
The circumstances in the coming months will require extensive policy action both by the government and the central bank to deal with the effects of this impact.
Philip Pilkington explained that the paper aims to estimate the macroeconomic effects of rising energy prices on Hungary by comparing the current situation with the 2022–2023 energy crisis, although the present shock could prove significantly more severe. The study focuses primarily on two key variables: inflation and the exchange rate.
The study identifies inflation and the exchange rate as the main channels through which rising energy prices affect the broader economy.
To model the impact of rising energy prices on the Hungarian economy, one must first forecast future energy prices. Pilkington explained that the study focuses on Europe Brent Spot Price FOB rather than energy futures markets, which have behaved unusually during the current crisis. Using forecasts from energy advisory company FGE NexantECA, the paper projects that Brent crude prices could rise to at least $154 per barrel, while an extreme scenario could see prices climb as high as $250 per barrel. According to the study, this would represent a much sharper increase than the surge seen after Russia’s invasion of Ukraine in 2022.
Figure 1. Europe Brent Spot Price FOB. Source: U.S. Energy Information Agency & FGE NexantECA.
The impact of energy prices on the Hungarian inflation rate and the exchange rate can be modeled using statistical analysis, which shows that changes in the oil price drove most of the change in both inflation and in the value of the forint during the last energy crisis. “This means that if we have a solid forecast of energy prices in the future, we can predict with a high degree of confidence how high inflation will rise and how much the forint will fall. Using oil price forecasts from FGE NexantECA and linear regression analysis, we can create inflation and exchange rate forecasts,” he explained.
Fitting a model between the Europe Brent Spot Price FOB and the inflation rate during the previous energy crisis yields an R² of 0.77, while a model fitting the Europe Brent Spot Price FOB to the forint–euro exchange rate (HUF–EUR) yields an R² of 0.83. The energy price impacts the two variables with different lags. Europe Brent Spot Price FOB impacts the Consumer Price Index (CPI) with a best fit after a 10-month lag and impacts the Hungarian exchange rate with a best fit after a 4-month lag.
The modeled results are laid out in the following two charts.
Figure 2. Inflation Rate in Hungary.
Figure 3. Euro–Forint Exchange Rate.
These are significant projected movements. The model suggests that Hungary could see inflation rise from its current annualized rate of around 2.1%in March 2026 to anywhere between 34% and 59% in July 2027.
This compares to the previous peak of inflation during the 2022–2023 energy crisis of 26% in January 2023.
This is very high inflation for a European economy, according to Pilkington. “If this model proves accurate, it will be one of the highest inflation rates experienced by a European Union member in recent decades,” he concluded.
Via Hungarian Institute of International Affairs; Featured photo: Pixabay
The post Potential Inflation Surge Predicted in New Energy Shock Scenario appeared first on Hungary Today.
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