First, shop failures, then terrifying prices in Hungary

In February, the government introduced a price cap on some food items considered essential. The stores have to sell these products at last October’s price, which is now becoming more and more unpleasant for everyone. For the shopkeepers, because due to the loss of the price-stop products, the price of the other products had to be increased even more than would be justified (in order to incorporate somewhere the loss suffered on the price-stop products), and for the customers, because more and more often it is not possible to get the price-stop products at all products. In addition, it is difficult for small shops to incorporate the loss into the prices, because they can spread it over much fewer products, and they are anyway more expensive than supermarkets. Therefore, many people were waiting for October, the possible end of the price freeze period. However, many shopkeepers hoped in vain, as Minister Gergely Gulyás announced at the weekend that the food price freeze will remain until the end of the year, meaning that it will definitely be extended by another three months.

As a result of the extension, you can still buy these products at last October’s price, but only if they are available on store shelves. There are already some discount stores in Budapest where only 1-2 of the 6 price-stop products are available, the rest are in short supply. This is no wonder, as the demand for these products is huge. Customers buy the chicken breast first, because the price of this does not increase, then the rest of the chicken, the 2.8% of the UHT milk, is sold out, and only then the others, even the ESL milk buyers they switch to the price cap UHT. According to our retail sources, more and more stores are experiencing shortages of sugar, flour, milk, and chicken breast, because the demand for them has increased significantly. Accumulation of durable products started even before Gergely Gulyás’ announcement, as customers expected a significant price increase after the end of the price cap.

And once the price cap ends, the price of these products will really increase. This can be seen from the fact that, although the price of chicken breast was frozen, the price of other parts of the chicken rose significantly compared to last October’s level. The price of cut-up chicken and chicken legs also shot up like a rocket (they are not subject to the price cap), so after the price fixing is lifted, chicken breast will also catch up. The current price of HUF 1,700 per kilo may increase to HUF 2,400-2,500, if we start from the increase in the price of cut-up chicken and chicken legs in the past period. You can also see that the purchase price of chicken breast is around HUF 2,000, so these stores sell at a substantial loss.

Since the consumer price of a short loin is over HUF 2,200, a pork leg would not cost less than HUF 1,800-1,900 at the market price. Compared to this, due to the official price, consumers now get it at a lower price of HUF 3-400.

The price of 2.8% UHT milk would not be HUF 280, but at least HUF 400.

The average price of fine flour is HUF 211, but without a price cap it would now be close to HUF 400, that is, we could talk about a doubling.

The price of cooking oil cannot be beaten (there is no other product in the basket that closely follows its price), but the 50% price increase can be said to be a very conservative estimate.

The same uncertainty can be said about sugar, of which there is now a large shortage, so this in itself would have a strong price-inflating effect.

György Vámos: the price cap distorts market conditions

“In retail the loss of sales for the entire period of the price cap can be estimated at HUF 200 billionbased on the value of family spending and the impact on inflation,” he told Portfolio György Vámos, Secretary General of the National Trade Association (OKSZ). “This is a multiple of what could have been calculated back in February, when the actors were expecting a price freeze lasting 3 months.

This also shows that the government had to make a decision in an extremely difficult situation, since when the price cap was launched, today’s market situation (over 30% increase in the price of food in stores, against the backdrop of much faster price increases in the producer and processing industry, the jump in energy costs and the drought) could not be expected” he explained.

Retailers’ losses keep increasing as the purchase price keeps rising, which has been higher for a long time than the consumer price fixed on October 15 of last year, which has been frozen for the eighth month,” said György Vámos. By the end of December, eleven months of lost sales and financial losses accumulate. In addition, the costs cannot be passed on to customers without limit (not even the loss of the price cap), as families buy less food in quantity as a result of price increases, this can also be read from the official statistics.

“Not only the OKSZ, but also other professional organizations advocated the removal of the price cap in October, but in the end, the government put the interests of the consumers first, not the shopkeepers,” he added.

Due to unfavorable external influences, the market is constantly and rapidly reorganizing itself, due to high inflation, consumers are looking for cheaper products and stores offering more favorable prices, such are the price-stop products – pointed out György Vámos.
“It should be expected that there will occasionally be a shortage of products from price-stop products in the following months, as now in the case of sugar, due to transportation difficulties and a possible shortage of raw materials,” the expert opined.

As a result of the price cap, at the same time, among the affected products, a transformation unfavorable for both producers and processors can be observed, which distorts the market conditions, since, for example, the price of 1.5% UHT milk, which was previously lower, has become more expensive, and less of it is being sold. while the 2.8% price of the price stopper did not change. The situation is similar for chicken breast and chicken legs, but pork is no exception. Therefore, manufacturers and traders are both facing a serious problem – concluded György Vámos.

Finally, the most unfavorable effect for trade, which – it must be emphasized – is not only the price cap in itself, but the combined consequence of all the unfavorable processes, is that the number of food outlets continues to decrease, primarily among SMEs, especially in small towns, compared to the average of previous years to a much greater extent – he concluded his words.

Therefore, the population will avoid increases of several hundred forints, since the price cap will remain in place this year, while causing difficulties for shopkeepers. However, they are still plagued by a number of problems: the most serious are the explosion of energy prices and the continuous rise in purchase prices. In recent months, the newly imposed special tax also caused problems, but it was still passed on to consumers, as e.g. also the drop in the forint exchange rate (due to the price increase of imported products).

Previously, when the price cap was introduced at the beginning of the year, the resulting loss could be passed on to consumers (through the price increase of other products not affected by official prices). They did this even with the first extension of the price cap, but now, with the latest extension, the situation is different. According to our retail sources, shopkeepers can no longer blame the explosion of energy prices entirely on consumers. Food inflation is already 30%, and retail sales are already showing a decline. We have reached the point where the population’s real income is no longer increasing and its consumption is decreasing.

In the meantime, purchase prices continue to race, so due to the extension of the price cap, the companies would have to implement another round of price increases, but this is becoming more and more difficult. Due to the increasing problems, even more shops find themselves in a situation where it is no longer worth being open for them. The decrease in the number of store bankruptcies, i.e. the number of retail units that have been going on for many years, can thus easily accelerate in the next period.

Cover image: Getty Images


Source: Portfolio.hu – Gazdaság by www.portfolio.hu.

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