Magyar Nemzeti Bank: Price caps did not help curb food inflation

By: Trademagazin Date: 2024. 02. 26. 15:33

Based on a study by the Magyar Nemzeti Bank (MNB), price caps did not reduce, but actually increased food inflation in the domestic market. During the period examined by the MNB, the price caps caused “market distortion effects,” and the difference between domestic and regional food inflation continued to grow.

The study points out that the introduction of the price monitoring system proved to be more effective as it increased competition between companies, contributing to the alleviation of food inflation. The reason for the failure of the price caps was that the companies compensated for their losses by raising the prices of the affected food products.

In reality, price caps led to an increase in the price of many other products, for example, fixing the price of milk caused the price of cheese to increase. The special tax introduced by the government also had an inflation-stimulating effect. The MNB also highlighted the drop in the forint exchange rate, which was more easily enforced by companies during the increase in demand after the Covid-19 epidemic.

The study also addressed changes in consumption habits, stressing that declining consumption due to rising prices ultimately reduced inflation. According to one of the MNB’s observations, domestic food prices react more sensitively to international cost shocks, partly due to the small size and openness of the Hungarian economy.