Hungarian government is gambling with the price caps – are they going to win?

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Almost everyone agreed that the measures are beyond the planned time frame and are not sustainable at all. But still, the price caps remain despite their inarguably counterproductive effects.

The price caps have been extended for three more months at least. According to Péter Virovácz, senior analyst at ING, the government is planning to lift the price cap when it is certain that it will not result in an immediate inflationary and budgetary shock, wrote HVG.

“The government played roulette and put everything on the black, the oil”, he said. If everything goes as they hope, it could save Hungarians from paying the current high prices of the global market.

Read also: Price of bread in Hungary has increased three-fold compared to EU average

The government is waiting for the global market prices to catch up with the price caps, which they calculate to occur around the new expiration date, 31 December. This way, consumers will not be burdened by drastic gas prices ad the inflation rate will likely remain under 20 percent as well.

The current actions could help prevent the demand from falling behind but simultaneously they could also stretch out the inflation period. Although we win a few months by getting away with lower bills, inflation could stay sky-high for more than a year. It is projected to decrease to an acceptable level only in 2024.

The price caps’ presence regarding foodstuffs is different. It affects such a small section that it would only have a minimal impact on inflation. However, as a consequence, many stores had to increase the prices of other items which would not have been necessary without the price caps. It appears that the government’s new decision is more of a political choice than a budgetary one. Now, the government’s main goal is to mitigate the decrease in demand in order to boost the economy.