Hungary: Ukraine transit fee hike causes higher fuel prices

FILE PHOTO: Gergely Gulyas, the Hungarian prime minister's chief of staff, speaks during the Conservative Political Action Conference in Mexico City

BUDAPEST (Reuters) - Hungary said on Wednesday a sharp increase in oil transit fees by Ukraine has contributed to a rise in fuel prices, adding 0.5% to inflation and slowing a retreat in the European Union's highest national rate of price growth.

Hungary still expects inflation to fall into single digits by the end of this year, probably in November, somewhat later than previously expected, Gergely Gulyas, Prime Minister Viktor Orban's chief of staff, told a media briefing.

Annual inflation slowed to 16.4% in August, but came in slightly above expectations. Rampant inflation - which peaked above 25% in the first quarter - has hammered consumption as real wages fell this year, despite hefty wage hikes.

"There are some alarming signs, which mainly relate to fuel prices being higher than before," Gulyas said.

"The main reason for this is that we need to import fuel at five times the price via the pipeline across Ukraine," he said. "The hike in the transit fee goes against all benchmarks and recommendations."

He said Hungary paid Ukraine 3.5 times the benchmark level, which he did not specify, and this fed directly through into Hungarian fuel prices.

Two sources familiar with the matter told Reuters in March that Hungary would start to pay Ukraine for the transit of Russian oil through the Ukrainian section of the Druzhba pipeline to maintain its supplies.

The National Bank of Hungary cut its one-day deposit rate further by 100 basis points to 14% last month, as expected, continuing to unwind its rate hikes as the EU's highest inflation rate is finally decelerating.

(Reporting by Gergely Szakacs and Anna Wlodarczak-Semczuk; editing by Mark Heinrich)