Hungary plunged into inflationary chaos

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photo. Wikimedia Commons Most Hungarian supermarkets have signs with a list of shopping restrictions right at the entrance. For example, it is allowed to purchase only 1 kg of potatoes, 1 l of sugar or oil. Flour and eggs, and even poultry, are also subject to limits. In February 2022, the government of Viktor Orbán forced supermarkets and small grocery stores to lower the prices of several basic foodstuffs (sugar, sunflower oil, milk, flour, chicken breasts, pork feet) in order to curb inflation, which was already high before the outbreak of the war in Ukraine. To help the Hungarian economy, strongly shaken by the coronavirus pandemic, limits were introduced, which – as you can see after almost 12 months – instead of helping, plunged the country into even greater chaos. In November last year, inflation in Hungary reached 22.5 percent, a record high in the last 10 years, and the main factors driving it were food and energy prices. With no hope of change, Hungarian inflation is now the fourth highest in Europe, behind the Baltic countries. The Hungarian Central Bank predicts that it may reach 26-27 percent in the coming months. Pursuant to the regulation of the Orbán government, sellers are forced to limit the prices of basic food products to the state from October 2021. The introduced solution was to protect the most needy consumers from an increase in the price of a basket of basic products, which now – despite restrictions in place for months – suffers from a 49% . inflation, which is more than twice the EU average. According to the Hungarian Central Bank, the measures taken by the government caused the price of some products to rise by more than 200%. “I first noticed it in cheese. Now it is a luxury product. And Hungarian cheese is more expensive than French cheese,” Viktoria, a 42-year-old resident of Budapest, told the Spanish daily El Confidencial. Retailers forced to introduce price limits and maintain stock levels from 2021 decided to drastically increase the prices of other products to compensate for their losses. While the price of chicken breasts has been capped, the price of the same chicken legs, which is not capped, has increased by 61%. Before eggs were added to the list of government products, their price increased by 103 percent. Compared to regular sugar, the price increase for powdered sugar has already exceeded 222%. Lard – an oil substitute (whose price has been reduced) has increased by 215 percent. All these figures come from the data of the Hungarian central bank. To prevent a stockpiling situation for citizens, many large chains – but also small grocery stores – have imposed limits on the number of products that can be purchased. As a consequence, just before Christmas, customers were forced to go from store to store to buy enough products to prepare Christmas Eve dishes. Interestingly, although sellers who did not comply with the price limits imposed were liable to a fine of up to HUF 3 million (€7,400), at least 56% of consumers were unable to buy food at official prices, according to a survey by Publicus demoscopic for the Hungarian daily Népszava. “If this economic policy continues, we will lose a decade, we will face stagflation,” warned central bank governor Gyorgy Matolcsy in early December in a speech to the Hungarian parliament, in which he called for the immediate lifting of price restrictions. In its report, the Hungarian central bank emphasized not only a significant increase in the prices of substitute products, but also serious disruptions in some production sectors (e.g. in the dairy industry) or an increase in the prices of processed food. Matolcsy’s statement caused a sensation in Hungary because it was made by a recent ally of Prime Minister Viktor Orbán. Most Hungarian economists point out that such measures as price caps should be temporary. Despite warnings from analysts, in another attempt to control inflation, the Orbán government set maximum fuel prices, which caused shortages at gas stations and widespread chaos, and finally forced the authorities to abandon this idea. However, it seems that price restrictions on food will not end. Currently, their validity has been extended to April. This new time horizon scares not so much the big supermarket chains, which are able to take the blow, but rather small retailers. Seeing no solution, the Hungarians tightened their belts. “The last time the grocery trade underperformed during the Great Recession in 2009, this is how consumers have adapted to the new reality of rising food prices,” says Peter Virovocz, senior economist at ING.

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