Hungary's government has decided to roll back prices for some staples to October levels from February 1, Prime Minister Viktor Orban announced in a video message on January 12.
The price of granulated sugar, flour, sunflower seed oil, pork leg, chicken breast and cow's milk with 2.8% fat content will be rolled back to October 15 levels. Details are still sketchy and will be regulated in a decree.
It is still unknown how prices will be set back, whether it will be the official price monitored by the statistics office KSH or prices charged by individual shops on that day. Online cash register data allows the tax office to provide precise data on prices broken down by stores.
There are also discrepancies in the regulation, as one kilogram of chicken breast cost more three months ago than today, analysts pointed out.
"Hungary's regulated system of retail energy prices had shielded households from the kind of energy price increases driving up inflation in the rest of Europe", Viktor Orban said in his video message, adding that "the prices of other important products are rising meanwhile".
He argued that the measure is needed to bring down inflation and ease the burden on people.
Inflation spiked at 7.4% y/y in November, but the prices of some basic foodstuffs rose at double digits and were widely expected to rise at the same pace in 2022. The National Bank in its latest report forecast a gradual fall in prices from December.
Instead of reducing VAT on these products, the government decided to pass on the costs of the regulated prices shared by producers and traders, analysts noted. Hungary has the highest VAT rates in Europe at 27%. It is 5% on milk, fish, chicken and pork.
The latest measure comes just 12 weeks before a high-stakes election that could see the end of Viktor Orban’s 12-year rule. The ruling Fidesz party unleashed an unprecedented money transfer. Families with children will be refunded with the entire personal income tax payment capped at HUF809,000, which will set the budget back by HUF600,000. The government was to pay two weeks of pension premium in January, with the promise of paying out the entire 13th month of entitlement by 2024.
The cabinet decided to bring this forward by two years and more than 2mn people will receive the entire monthly entitlement eight weeks before the election. Orban announced the reintroduction of the 13th month pension during the height of the pandemic, a smart political move as his predecessors, the former social-liberal government, was forced to phase it out in 2009 after the economic crisis.
The government offered PIT exemption for under-25s, and public sector salary increases in 2022. The minimum wage will also rise by 19% and with salary scale-up the average gross wage is expected to rise 14-15% this year.
The government has also interfered in the market, capping fuel prices in November and freezing mortgage loans for variable interest-rate loans. At the end of the year, a decision was made to allow cardholders of the SZEP voucher cards to use them for purchasing foodstuff from February 1. The hotel and catering sector said the measure will set back their turnover as the voucher card, the most popular fringe benefit, could originally only be used for leisure, hotel services and for hot meals.
Opposition parties said the government’s latest move scheduled before the election is a clear admission that the Hungarian economy is in a tragic state. Their joint prime minister candidate Peter Marki-Zay promised to reduce VAT on basic foodstuffs to 5% if the opposition alliance takes power.