Caution and Gradualism Advised for Phasing Out Price Cap

Hungarian economic analysts are weighing in on the delicate process of dismantling the price cap measure, advocating for a cautious and gradual approach. Experts like Gábor Regős and Dániel Molnár stress the importance of avoiding abrupt shocks to the economy, particularly concerning inflation. The primary goal is to ensure that retailers do not exploit the removal of the cap by implementing sudden, substantial price increases that could alienate consumers and stifle demand.

“

Traders will likely want to regain at least part of the lost profit after the measure is phased out, but a sudden and significant price increase would also significantly curb demand, not to mention that households might start hoarding before the phase-out.

Molnár points out that while a stronger Forint exchange rate doesn't directly influence the price cap's mechanism—which links consumer prices to procurement costs—it does indirectly benefit retailers. For products not subject to the cap, a stronger Forint allows for wider profit margins without immediate price hikes. This suggests that the current economic conditions, including a relatively stable currency, provide a more favorable environment for managing the transition away from price controls.

“

It is important that there is no immediate major jump in inflation, and on the other hand, that retailers do not get greedy, thinking that since there is no regulation anymore, anything goes.

Regős highlights that the timing of the price cap's removal is crucial. Factors such as low inflation rates and the current strength of the Forint are positive indicators. However, he also cautions against overlooking external risks, such as the ongoing conflict in Iran, which could introduce volatility. The consensus among analysts is that the price cap has moderately curbed inflation, and a phased withdrawal would minimize its impact, keeping it below one percent. This measured approach aims to balance economic stability with market liberalization.

“

The stronger forint exchange rate fundamentally does not affect the operation of the price cap, the measure links consumer prices to procurement prices, so if procurement prices decrease due to the stronger forint, it will also be reflected in the prices of the affected products.