BREAKING – Orbán’s response to inflation is to fuel inflation: supermarket margins capped

Prime Minister Viktor Orbán posted a video message on social media on Tuesday, stating that the government would cap retailers’ profit margins on certain staple foods at 10% from the middle of March.

As we reported today, Hungary’s inflation has reached a 15-month high. Latest figures and key insights can be found HERE.

Orbán announced that the cap would apply to 30 basic food items and remain in force until the end of May. He added that if a review determines the measure is still necessary at that time, it will be extended.

He stated that the government had held discussions with supermarket chains to curb “unwarranted and exorbitant” price increases, but the retailers’ proposals fell “well short of our expectations”.

He highlighted that the price of eggs had risen by 40%, while butter and sour cream prices had increased by more than 80%. “That is unacceptable,” he said.

This move will only exacerbate inflation

Price caps have already proven to drive inflation higher in the past, making this latest government intervention a flawed solution. This forced measure will lead to even higher inflation, as retailers will attempt to recover lost revenue by increasing prices on all other foodstuffs to sustain their businesses (covering overheads, salaries, taxes, etc.). Consequently, anything that is not classified as a staple food will become significantly more expensive. This will not only impact food but also essential household items such as detergent, cleaning products, and toilet paper. A typical Hungarian shopping basket includes much more than just flour, milk, and eggs, so this measure will provide little relief for Hungarian families.

Moreover, as people shift towards consuming more of these capped-price foods, shortages will occur, causing producer prices to rise. Since this is not a fixed price but rather a margin cap on purchase prices, suppliers will increase their costs, and within one to two months, prices will likely return to current levels. However, in the meantime, prices for all other products will rise significantly.

The government has stated that this measure will be reviewed in May, but it is unlikely they will retract it before next year’s elections, as doing so would trigger another inflationary shock. This suggests the policy will remain in place until next spring, alongside the tax credit for families with three or more children, which Orbán justified by citing Hungary’s supposed strong economic situation.

Overall, this policy will provide a major boost to inflation, potentially pushing it back above 20% by next February, compared to the current 7%.

List of 30 products with official margins in Hungary

The government-affiliated Index.hu has obtained the list of 30 products subject to official margin caps:

• Chicken breast fillet
• Chicken leg
• Chicken rump
• Chicken wing
• Whole chicken
• Turkey breast fillet
• UHT milk, 1,5% fat.
• UHT milk, 2,8% fat.
• ESL milk, 1.5% fat.
• ESL milk, 2,8% fat.
• Edible oil
• Margarine
• Lard
• Butter
• Fine flour
• Crumbled flour
• Late potatoes
• Granulated sugar
• Leg of pork
• Pork loin
• Pork side
• Pork rind
• Eggs
• Sour cream
• Trappist cheese
• Cow curd
• Natural yoghurt
• Fruit yoghurt
• Garlic
• Parisian sausage

Read here for more news about inflation in Hungary.