Inflation skyrocketing? Hungarian government may reinstate price caps in desperate move

The Hungarian economy is facing new challenges and the government is preparing to intervene again. Economy Minister Márton Nagy hinted earlier this week that price caps could be reintroduced if necessary.

According to Index, the reason behind this intervention is an expected rise in inflation, the latest figures for which will be published shortly by the Hungarian Central Statistical Office. Based on the trend in recent months, consumer prices are already on an upward trajectory that could justify government intervention.

The Hungarian government has previously implemented similar measures to sustain economic stability. Initially, petrol prices were capped at HUF 480 (EUR 1,19), followed by price caps on essential food items. However, these actions led to unintended consequences, as retailers sought to offset revenue losses by increasing the prices of unrestricted goods. In response, the government adopted additional strategies, including mandatory interventions and price monitoring, which gradually proved effective.

Are price caps making a comeback?

A recent post by Márton Nagy has reignited the debate on the need for new price caps. As reported by Pénzcentrum, Katalin Neubauer, Secretary General of the Hungarian National Trade Association, stated in an interview that there is a serious risk of further inflation if the government intervenes in market pricing again. Trade associations are already collecting data on price developments to prove that retailers have not increased their margins but simply passed on increased costs to consumers.

Lessons from previous price caps show that retailers have been the biggest losers, while producers and processors have not borne a similar burden. According to the National Trade Federation, if new price restrictions are imposed, all actors in the supply chain should share the burden. Otherwise, wholesalers and producers could once again raise prices according to their own pricing strategies, while retailers would have to keep final consumer prices low.

The government’s targets and the price monitoring system

The cabinet aims to increase household purchasing power by raising real wages and containing inflation. The online price monitoring system, which already covers a wide range of product categories, could be further expanded to give a more accurate picture of price developments. This could result in the monitoring of up to 100 products, including dairy, meat, coffee, tea and other basic foodstuffs.

According to ATV, the possibility of reducing VAT is often raised in the fight against inflation, but Márton Nagy does not see it as an effective tool. In his view, traders would not pass on the price advantage of a VAT cut to consumers but would increase their own profits. Therefore, the government prefers targeted price control measures, which can be used immediately if necessary.

The Hungarian economy is once again at a crossroads: should it leave price developments to market mechanisms or should it seek to control inflation through government intervention? The government is ready to introduce further price caps if the situation so requires, but traders and professional organisations are concerned about the expected side effects. In the coming weeks, the government will decide what tools it will use to ensure consumer price stability and what impact this will have on the economy as a whole.

Read also:

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