• December 29, 2021
  • István

At the end of the year the inflation is at 7.4 % and the Euro at 371.20 Forint, our currency is exchanged at worst rates ever. But this doesn’t even touch the reality at the groceries, the Privátbankár’s statistical food basket showed an inflation of 13.8 % ►HU in the December purchase, the 2nd highest ever after November 2021.

The national bank started to rise the basic interest rate ►HU and the governor declared that he wants to go on with this policy in 2022 ►HU.

I am completely aware that it is impossible to get inflation under control by the usual means of the central banks only, especially because the reasons for our inflation are not caused by the economic cycle and using anti-cyclical policies to slow down the economy as only mean could be very harmful. The price for crude oil never was brought down by rising interest rates and our food prices are not exploding, because the economy would be going in a too high gear. In fact we are recovering from the hard setback economy suffered during the corona crisis and while the leading central banks decided to act reluctant, Matolcsy uses the traditional anti-cyclical measures only. The only result was that the exchange rate recovered for a few days after every rate hike. The government did nothing to slow down inflation, the austerity package from last week is definitely not suitable to have a deeper impact of inflation, but on spending only. Cuts on health care in a state owned health care system has zero impact on the price development.

What do experts think about the situation?

Júlia Király, the former vice-governor or the MNB, who in the end of October had to resign from the board of directors of Belgium’s KBC bank (owner of Hungarian KH bank) for standing as private person next to Márki-Zay during the primaries, gave an interview to Szabad Europa ►HU in November. Her example is the Czech Republic, where the central bank acted decisively with sharply raised interest. According to her both government and central bank failed in Hungary. She called the MNB’s decision “a school example of credibility and opacity,” because the different rates were changed without coherence and she fiercely criticised the extreme short term spending of the government before the elections. She is convinced that the budget must be restructured and corruption must be fought to get inflation tackled.

Professor Péter Róna is another economist of high rank who already 2 months ago stated his view about the inflation on Klubrádió ►HU. Also according to him the inflation was severely mismanaged by both the government and the Magyar Nemzeti Bank. According to him the tension between the central bank and the treasury is just a play. Without substantial steps, inflation will get out of hand and was expected to reach 7 – 8 % by the beginning of next year . This level can only be forced back into the desired range with severe fiscal austerity and a very tight monetary policy. Róna believes the government is already prepared to lose the election and is preparing to undermine the new government with this policy.

What are the suggestions from the political camps?

Lajos Korózs (MSZP,) chairman of the welfare committee in parliament, suggested to adjust the VAT on food ►HU. Right now very few articles are taxed at 5 % rate, as pork for example. Bread or mineral water is taxed at 18 %, but most food is taxed at the highest rate of 27 %. According to this suggestion the regular VAT would be for the basic needs 5 % and the other food rate would be 18 % and there would be no food taxed with 27 % VAT any more. Korózs regards this as measure against growing poverty. Antal Csárdi (LMP) and Dániel Zsiga-Kárpát (Jobbik) both want to lower the VAT on food as well. DK suggests for fighting inflation stabilising the economy, establishing responsible financial policies, and to introduce the Euro ►HU. This definitely fits to Márki-Zay, who declared that it should be listened more to Matolcsy and less to Orbán ►HU.

Orbán had quite another idea. The large international retail companies, where prices are in most cases lower and quality higher than in the chains in the hands of the ruling elite, will be punished next year ►HU for being better than the Hungarian chains. They will not only be taxed higher, these companies must give for free all products that are 48 hours before end of advised shelf life to the not yet founded Élelmiszermentő Központ (Food Rescue Centre.) How this food will be transported, distributed and used within 48 hours remains the secret of Orbán. One doesn’t need to have a glass ball to understand that these measures will lead to higher prices in the cheaper grocery stores only. Since these products are also sold at a discount these days the budget of many families will be damaged further. Scorched-earth policy.

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Paul Hampton
Paul Hampton
December 29, 2021 17:15

Very interesting. Unfortunately there is only one way to eliminate inflation. Restrict the money supply. The simplest way is by raising interest rates, The result is not pain free but mild compared to the damage done to society and to the economy by inflation.

Don Kichote
Don Kichote
December 29, 2021 17:34

Topic Inflation Example Germany the NTV writes that Federal, state and local governments spend 50 billion annually in construction – from roads to buildings. But construction prices have risen particularly sharply. The IfW economist estimates that this has added about 1.3 billion euros in extra costs to the state compared to normal inflation.

“Federal, state and local governments” are, of course, these Orbans in Hungary. Ergo, the Hungarian state has less revenue and higher spending, so Orban. I am not sure if this comparison is transferable 1:1 but it will be expensive in any case.

Istvan (Chicago)
Istvan (Chicago)
December 29, 2021 18:06

Current Annual inflation for the 12 months ending in November 2021 is 6.81% here in the USA. It is not that far from Hungary. Just like in Hungary it’s the worst for the mass of lower income families. Since I am the owner of a good number rental properties here in Chicago, I can testify to the fact that rent rates here simply skyrocketed, in the last 10 years, but the year over year rent rates for a two bedroom market rate apartment in Chicago currently shows a 13% increase, for one bedroom apartments and its a much more modest 2.9% increase. 
Chicago is now a relatively cheap rental market because there has been an exodus of more moderate middle class renters from the city because of the fear generated by rise of crime here and the increase of remote work due to the pandemic in the post George Floyd world of the USA. We saw the same thing happen to Mexico City with its increase in crime over the years. The truly poor have no where to go except the streets and shelters, and here in Chicago we have tent camps in our lake front parks and hidden under bridges with homeless people, some of whom have mental health issues or drug addiction issues, others are low income workers priced out of the housing market.. It is actually worse in warmer climate large US cities.

The truth is having wealth makes life much better, even if you can’t drive your high end car out of fear of car jacking, or go to high end shopping areas that have been repeatedly looted. I have been carrying a hand gun legally for several years here in Chicago since our laws were changed, not all the time but honestly more frequently since the George Floyd rioting. Many more Chicagoans have gotten permits to carry concealed hand guns, with other largest increases among women. There are reports pretty regularly of people killing would be car jackers or street robbers in Chicago. This in turn has made these largely young criminals in Chicago (who are in their majority African American as are most of their victims) much more inclined to shoot first in what seems like insane killings. At least in Hungary these kind of things are still pretty rare, in good part due to strict gun ownership laws built on European traditions.

I expect the US Federal Reserve will begin to hit the brakes on the US economy by raising the so called discount rate. The federal discount rate is the interest rate the Federal Reserve (Fed) charges banks to borrow funds from a Federal Reserve bank. The Fed discount rate is set by the Fed’s board of governors, and can be adjusted up or down as a tool of monetary policy. So it wasn’t only the Orban government that has misunderstood inflation and saw it as being due to an increase in consumption associated with the pandemic a possible end of the pandemic driven economic downturn.

I went though the inflation nightmare during President Carter’s administration when the Fed just kept raising interest rates ( Home mortgages were hovering around 14% for a 30 year loan back then. In fact because my wife and I had a supply of cash we greatly expanded our property holdings that here in Chicago which were built on inheritance from my family, because the property values crashed we could buy cheap. Every nightmare has a silver lining if you have money available to you, if you are poor or working class and lack protected assets watch out.. Capitalism does go through periods of rampant inflation and a 2011 book by the economists Carmen Reinhart and Kenneth Rogoff titled “This time is different eight centuries of financial folly’ where a number of these periods are discussed. Both the USA and Hungary seem headed down that path yet again.


December 29, 2021 21:06

For my wife and me the most important factors of “inflation” in Hungary are:
The weakening of the Forint which forces companies to raise prices for products sold internationally – if you get more money selling to Austria and Slovakia the why do business in Hungary?
And of course the crazy VAT which makes many people go for shopping in Austria and Slovakia – of course in Covid times this is more complicated.
My favourite point here:
Just have a look at the usage instructions for a product sold at Aldi or Lidl. They usually are in at least 6, often in up to 20 languages …
A company would have to be crazy to sell to Hungary if the price was too low.
Not too much OT:
Sometimes I wonder what percentage of the money made by Hungarian Fidesz honchos (wanted to use a stronger word, but …) goes to other countries. Of course this pushes down the value of the Forint which makes prices raise.
I still remember when 90 Forint were 1 Deutsche Mark around 20 years ago, when we had 100 Forint banknotes etc …