Food Price Margin Reduction Extended Until the End of August

The minister emphasized that this step is intended to help Hungarian households reduce their everyday expenses and to support the stabilization of prices in retail stores. The extension means that a capped profit margin will continue to apply to the affected product categories, limiting the markup that retailers can charge.

According to the government, the margin reduction has proven to be an effective tool in taming inflation, which is why they consider it justified to continue the measure throughout the summer months. More detailed information regarding the specific product categories and retail segments affected is expected to be released in due course.

OKSZ’s position on the decision:

We regret that the government has extended the system of official prices without any professional consultation, thereby sweeping the tensions in the Hungarian economy under the carpet and ignoring the long-term interests of the Hungarian economy and customers.

The margin freeze has achieved the goal that the government attributed to it. In a drastic way, but it has contributed to customers not fully feeling the high price increase demands appearing in new supplier contracts. OKSZ sees this objective as inherently flawed, because it does not allow the strong hand that keeps the economy in balance due to competition to prevail.

In addition, any result of official price regulation can only be temporary, tensions accumulate under the surface, amplify each other, and will inevitably surface over time. This was the moment when all this could have been put to a painless end. To this end, OKSZ also put forward proposals to the government last week that would have ensured the gradual phasing out of the margin freeze. We regret that the cabinet did not take advantage of these opportunities, because the margin freeze does not serve the interests of either the Hungarian economy or the consumers:

In Hungary, the security of supply is already at risk in the 400 settlements where no grocery stores operate. The number of these settlements will increase, as 18 percent of the operators of smaller chains and independent stores, which account for 48 percent of the food retail trade, plan to close one or more stores due to the margin freeze.
In many cases, the large Hungarian food retail chains source more than 90 percent of the food product groups that account for the majority of their turnover from domestic sources. The margin freeze opens the door to foreign suppliers, causing significant damage to Hungarian agriculture and the food industry for a long time. Supply chains are inherently slow to regenerate.
By keeping the margin cap in place, retail loses its means to effectively mediate between suppliers and consumers, while absorbing and dampening price fluctuations in order to always lure customers into stores with the most favorable prices available.

In light of all this, OKSZ calls on the government to, given the expected economic consequences, issue a decree to phase out the margin cap as soon as possible, even if it means doing so gradually. The longer the margin cap remains in place, the greater the uncertainty arising from its phase-out, resulting in slow growth in household consumption.