Decree on price margin cap published: Experts say disaster looms for Hungarian stores – UPDATE: exemptions

The Hungarian government has introduced a price margin cap for retailers, limiting their profit margins on essential food items. This move follows a significant increase in consumer prices, with inflation reaching 5.6% in February, and food prices rising by 7.1% year-over-year. The decision aims to stabilise prices and protect consumers from excessive price hikes, particularly in the lead-up to the 2026 elections. However, many experts believe this move will only further fuel inflation.

Key provisions of the price margin cap

As we wrote on Tuesday, the new regulation, published in the Hungarian Gazette, sets a maximum profit margin of 10% for retailers on thirty basic food products. For items where the margin was below 10% in January, retailers must maintain or reduce it to that level. The calculation of the margin involves subtracting the supplier price from the consumer price, excluding VAT, Telex reports.

Additionally, the regulation addresses the composition of product offerings. Retailers must ensure that their own branded products do not exceed the proportion they represented in January and February. Furthermore, they are required to sell at least the average daily quantity of these products that they sold in 2024.

Enforcement and penalties

The government has established strict enforcement mechanisms to ensure compliance. Retailers violating the margin cap can face fines of up to HUF 5 million (EUR 12,475) per product category. Those failing to meet the required sales volume or exceeding the allowed proportion of own-brand products may be fined between HUF 500,000 and 2 million (EUR 1,247 and 5,000).

UPDATE: Exemptions for small businesses

Notably, the price margin cap does not apply to small shops, Telex reports. According to the government decree published Tuesday night, the regulation only affects retailers whose net revenue exceeded HUF 1 billion (EUR 2.5 million) in 2023. This means that small shops, which often operate with higher profit margins than larger retail chains, are exempt from the restrictions. This exemption could lead to a competitive imbalance, as small shops may continue to charge higher prices without facing the same regulatory constraints as larger retailers.

Potential impact on the Hungarian economy

Hungary’s inflation has been a persistent challenge, with recent figures showing an unexpected acceleration in price increases. The government’s intervention is reminiscent of previous measures taken during the 2022-2023 period, when price caps and mandatory discounts were implemented to control inflation.

While the price margin cap may provide temporary relief by reducing prices on essential items, its broader impact on overall inflation is uncertain. Analysts in Népszava’s relevant article warn that limiting profit margins could lead retailers to seek higher profits from other products, potentially offsetting the intended benefits. Moreover, the strong consumer demand, fueled by wage increases and tax cuts, may continue to drive inflationary pressures.

Political considerations: 2026 elections

The timing of this measure suggests that political considerations are also at play. With elections looming in 2026, the government is keen to maintain economic stability and public support. However, the approach has been criticised for being more political than economic, as companies and producers are hesitant to comment, fearing repercussions from the government.

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