Hungary's inflationary exposures to global price movements

Abstract

This paper investigates Hungary's inflationary exposures to global price movements using a simple cost-push input-output price model and a database of inflation-to-output price elasticities (Global Inflation-to-Output Price Elasticity Database, GIOPED) developed on the basis of the OECD's Inter-Country Input-Output Tables. Inflation elasticities are decomposed into local, simple, and complex global value chain effects by applying Wang's decomposition scheme (Wang et al. 2017) to price movements and inflation. Our empirical analysis based on GIOPED elasticities shows that Hungary is highly exposed to global value chain price transmissions originating in Germany, Austria, and Russia; and in particular to changes in energy prices. The crude oil and natural gas price boom and the resulting energy crises caused a significant increase in consumer price levels in Hungary; however, this explains only a fraction of current inflation rates.