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Poland and Hungary unveil new measures to limit inflation

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Budapest, Hungary – With inflation rates reaching record levels across Europe, Visegrad countries are scrambling to come up with solutions to alleviate the burden on vulnerable businesses and families.

Hungary’s Orban announces price caps of basic food products

In a video statement published on his Facebook page on Wednesday, Hungarian Prime Minister Viktor Orban announced price caps on six basic foodstuffs, namely milk, sugar, flour, cooking oil, chicken breasts and pork legs.

As of February 1, prices for these products will have to revert back to their levels from October 15 last year.

The move, which comes a few months ahead of key elections scheduled for April 3, follows a cap on gasoline prices introduced last November.

A few weeks ago, the governor of Hungary’s central bank Gyorgy Matolcsy also unveiled plans to pursue interest rate hikes to limit inflation to around 3%, compared to more than 7% in the latest estimates. Consumer prices have not increased at such a rapid pace in Hungary since 2007.

Directly hitting smaller businesses and the living standards of lower-income families, skyrocketing prices are seen as an unforeseen and potentially game-changing threat for the Hungarian government as the country braces for crucial parliamentary elections in the spring.

Orban’s “personalized approach to politics […] makes it difficult for [him] to sidestep blame for the condition of the economy,” analysts observe. “At the same time, [his] brand of populism, which emphasizes nationalist rivalries and has been effective in the past, can seem out of touch to citizens whose standards of living are swiftly plummeting.”

Poland unveils second anti-inflation package

Higher interest rates and more moderate public spending, two key traditional measures to limit rising prices, may not prove so popular in an election year, and could limit economic growth.

Although not facing any national election this year, the Polish government has also unveiled new measures to combat the inflationary wave.

After a first anti-inflationary package introduced in November, Poland’s government this week announced new steps to come into force in February, including cutting VAT on food, gas, and fertilizer to zero.

The annual inflation rate in Poland reached 8.6% in December according to the state statistics, one of the highest among EU economies.

While these measures may “temporarily ease the negative impact of high inflationary pressure, [inflation should] remain higher for longer, as elevated inflation in Poland is also fueled by domestic factors,” ING analysts forecast.

“It looks like Poland will become increasingly dependent on temporary solutions targeted at an ‘artificial’ reduction in inflation accompanied by policies targeted at stimulating consumer demand,” they write, calling on Polish authorities to implement more sustainable inflation-curbing policies “even if they lead to a temporary economic slowdown.”