Inflation at record high 20,1 percent in Hungary in September

The jump was so big compared to the 15,6% inflation rate recorded in August, because for the first time, the Hungarian Central Statistical Office (Központi Statisztikai Hivatal or KSH) calculated based on the new cost of utility bills i.e. calculating the part above average consumption at market prices. In addition, September prices were also pushed up by the drought that affected the country for months throughout the summer, directly increasing the price of food and indirectly affecting the price of many other products.

Among the different product categories, by far the biggest price increase (62.1 percent) was registered for household energy and heating, due to the change in the rules for the price caps on overhead costs which came into force on 1 August. Within this category, the price of piped gas increased by 121 percent, electricity by 28.9 percent, bottled gas by 45 percent and firewood by 43.8 percent.

Food prices increased by 35.2% on average, with the most biggest increase recorded for bread (76.2%), followed by cheese (68.0%), dairy products, butter and sandwich spreads (66.3%), margarine (61.2%), pasta (60.2%) and eggs (53.7%). The increase of the price of pork is below average with 22.4%, just like chocolate and cocoa by 19.1%, sugar by 10.9% and cooking oil by 5.0%.

The price of durable goods rose by 14.7 percent, including kitchen and other furniture by 21.2 percent, household furniture by 20.1 percent and new cars by 19.9 percent. On average, the price of spirits and tobacco has increased by 13.2%, spirits specifically by 16.5%. The cost of services rose by 8.2 percent, including 28.5 percent for taxis, 22.8 percent for home repair and maintenance, 20.5 percent for vehicle repair and maintenance, 16.6 percent for sports and museum admissions and 12.6 percent for rent.

The livelihood crisis is imminent

Perhaps the most painful aspect of the spiraling inflation is the dramatic rise in food prices, which has accelerated to a frenetic pace in recent months. In mid-September, we checked prices at the biggest Hungarian supermarket chain and found that our shopping basket of staple foods had risen by 39% in 9 months compared to December 2021.

And this rise in food prices is affecting all but the most affluent. At the end of September, Telex spoke to several charities who said they were now being approached not only by homeless people and members of marginalised social groups, but also by those with regular income. It has become increasingly common in recent months for people dressed in smart suits to turn up at food distributions.

The seriousness of the situation is illustrated by the fact that even the Hungarian National Bank has a gloomy outlook for the period ahead. According to its latest inflation report, real wages will decrease next year, meaning that salaries will be worth less than they were this year. They expect people to use up much of the reserves they have saved up in recent years, but of course this will only help those who have been able to save at all and have not had to use up their savings under Covid – among other things.

It started last year, but Putin made it worse

Inflation spiked across the world in 2021, during the period of the lifting of the closures which had been introduced due to the coronavirus epidemic. At the time, there was a sudden rush to restart everything in many places, leading to a shortage of goods and a disruption in supply chains, which in turn drove prices up. This was made worse by the outbreak of the Russian-Ukrainian war, which has affected most imported products ranging from raw materials to food.

In Hungary, inflation first emerged in earnest last autumn and then accelerated steadily at around one per cent per month until this summer. Hungary has long had one of the lowest inflation rates in the Central and Eastern European region due to the government's price freezes, but the partial lifting of the fuel price freeze and the restructuring of the system of price caps on utility costs have led to a further spike in inflation in the country this summer, with the new data making it one of the EU countries with the highest inflation rates.

Serious problems still remain

Although most analysts agree that inflation could peak somewhere around 20% in the coming months, there are negative signs that point to an even higher inflation. One of these is the brutal depreciation of the forint, which at one point led to a price of 428 forints for a euro.

The forint has weakened even more against the dollar (although the dollar is soaring against all other currencies), which means that the price of all goods imported into Hungary will be proportionately higher. And since the Hungarian economy is particularly open, i.e. we export relatively much and import much as well, the forint's devaluation will make everything in the shops more expensive.

Another major problem is the brutal trade deficit: according to the KSH in the first two-thirds of 2022 the Hungarian economy imported goods for more than 2 thousand billion forints more than how much it exported, meaning that money is leaving the country at a brutal rate. If this continues in the long term, the forint could continue to weaken, leading to a further increase in inflation, potentially even leading to an inflationary spiral.

There is light at the end of the tunnel

Although there is no end in sight for the weakening of the forint (the EU recovery fund would be the only thing that would help), there are signs that we are slowly reaching the peak of the depreciation. For example, inflation has been declining in most European countries recently, and commodities (apart from oil) have also become cheaper in recent months.