Hungary gov’t reacts to shrinking retail sector with compulsory price cuts

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The purchasing power of salaries in Hungary is falling due to record-high inflation, local business outlet Portfolio reported, citing the “devastating picture of consumption” in recent data from the Hungarian Statistics Office (KSH).

At the beginning of 2023, the purchasing power of earnings fell 7-8% in Hungary, after wage increases did not keep up with the national inflation rate of over 25%. 

Retail turnover has plummeted in Hungary – the annual drop in food turnover in March was greater than during the 2008-09 crisis, Portfolio noted. Due to galloping inflation, Hungarians are giving up more and more things, as the volume of retail sales in March fell 12.6% year-on-year. 

Food consumption decreased by more than 10% on an annual basis – even during the worst periods of 2008-09 saw drops of only 8-9%. The decline in food sales has been going on for nine months.

The KSH pointed out the “significant base effect”, as last year Hungarian Prime Minister Viktor Orban’s government handed out a variety of election-campaign sweeteners to taxpayers, significantly boosting turnover ahead of the national vote in April 2022.

Orban government reacts with compulsory price cuts

Meanwhile, the Orban government announced a decree for mandatory summertime price reductions at larger supermarkets, in the official Hungarian Gazette on 5 May. 

Retailers must decrease the prices of many grocery products, including meat, bread, milk and dairy products. The decree prescribes a minimum 10% price cut of at least one of these products on a weekly basis from 1 June- 30 September. 

Portfolio wrote that last March, fuel consumption rocketed, in part due to the government’s price cap after Russia’s invasion of Ukraine on 24 February 2022. However, as food turnover did not increase significantly at that time, falling food purchase volumes can no longer be explained by the base effect. Fuel purchases, non-food retail, and food consumption also fell sharply in March 2023, the business outlet added. 

While declines in non-food and fuel consumption is explicable by the high base, this is not the case for food consumption, which rose only 2% last year, while non-food rose 30% and fuel turnover by 50%.

Inflation may have peaked – local analysts

According to Portfolio, “the good news is that based on the monthly retail data, we have probably seen the bottom, as total turnover increased modestly compared to February”.

“The coming months may turn out to be a little better thanks to the fact that inflation is expected to begin to moderate from the peak of 25%,” the Hungarian business website commented, “but we will have to wait for a long time to see an increase in annual turnover again”.

The KSH wrote that in March 2023, with a significant base effect, the volume of retail trade decreased by 12.6% compared to the same period of the previous year. The volume of sales adjusted for the calendar effect was 10.3% lower in food and food-related mixed stores, 9.6% in non-food retail, and 29.3% in fuel retail. 

According to seasonally and calendar-adjusted data, the volume of retail trade increased by 0.8% compared to the previous month. In January-March 2023, the volume of traffic was 9.5% lower than in the same period of the previous year, according to calendar-adjusted data.

The volume of postal and internet traffic, accounting for 7.8 % of Hungary’s retail turnover, fell by 14%. The volume of traffic at fuel filling stations decreased by 29.3 %, the KSH added.