Change in VAT to have little effect on inflation

According to a study by KOPINT-TÁRKI Konjunktúra Kutató Zrt. and Agrár Európa Tanácsadó Kft., food inflation is expected to be significantly lower in 2009 than a year ago owing to a reduction in purchasing power. VAT on food is to rise from 20 to 25 percent, (with a decrease to 18 percent for dairy and bakery products) resulting in an average VAT rate of 23.5 percent for food. If retailers transferred the 5 percent rise in VAT to consumers in full, this would lead to prices rising by 4.2 percent. However, price rises are not expected to exceed 2-3 percent, which means higher VAT will not have a big effect on inflation. The position of the food industry continued to deteriorate in 2008 and has become critical. Production was down by 4.5 percent in the first two months of 2009, compared to the same period in 2008. Even formerly relatively successful branches of the industry like meat and poultry processing or beer are in decline. While profits generated by the food industry in 2002 totalled HUF 115 billion, this figure was only HUF 21 billion in 2007 and even lower in 2008.