End of mandatory discounts and price caps in Hungary: what to expect next?

Starting from 1 July, the mandatory in-store discounts in Hungary have been lifted, marking the end of the last remnants of price caps that allowed consumers to purchase certain items at or below cost over the past year.

With the removal of these government controls, prices of previously capped items are likely to rise. However, there is potential for price reductions in other products or for stores to offer more competitive discounts, Telex reports.

About the mandatory discounts: descendants of price caps

In early 2022, ahead of the elections, the Hungarian government imposed price caps on six essential food items: granulated sugar, wheat flour, sunflower oil, pork leg, chicken breast, and 2.8% cow’s milk. Later, potatoes and eggs were added to the list. These products had to be sold at prices fixed to a specific past date, often resulting in retailers selling them below acquisition costs and compensating by raising prices on other items.

The government claimed that these price caps helped curb inflation, but critics, including economists and the Hungarian National Bank (MNB), argued that they actually fueled it, making Hungary lead the EU in food inflation. The price caps were phased out by the end of July last year.

Subsequently, mandatory discounts were introduced, requiring larger stores to continually offer discounts on products from 20 categories. These discounts had to be at least 15% below the lowest price from the previous 30 days, resulting in frequent sales but not necessarily significant savings for consumers.

Store reactions

The National Trade Association (Országos Kereskedelmi Szövetség, OKSZ), representing retail chains, welcomes the end of mandatory discounts. They believe that consumers will benefit as retailers can now offer discounts tailored to consumer habits and expectations, enhancing competition and creating a more predictable market environment beneficial for long-term collaborations with domestic suppliers.

Tamás Kozák, OKSZ Secretary-General, noted that while discounts will continue, they will return to normal patterns determined by supply and demand. The items previously included in mandatory discounts are expected to remain part of regular promotions due to ongoing competitive pressures.

Potential price changes

Previously, retailers sold eight key items at or below acquisition cost, covering losses by increasing prices on other goods. With the end of mandatory pricing rules, retailers might reduce prices on other products. Kozák suggested that some items could become cheaper if retailers find lower-cost sources. Additionally, the stable market environment might benefit domestic suppliers by fostering long-term partnerships.

Economist György Vámos, former OKSZ president, stated that while the removal of price controls might lead to slight inflation, it won’t significantly disrupt the current favourable inflation trends. He also mentioned that this change will correct distorted price ratios, like the cheaper price of 2.8% fat milk compared to 1.5% milk.

What to expect in stores?

The end of mandatory discounts on 20 product categories is unlikely to significantly impact prices in the near term. However, prices of the eight previously price-capped items (granulated sugar, wheat flour, sunflower oil, pork leg, chicken breast, 2.8% cow’s milk, potatoes, and eggs) are expected to rise, either immediately or gradually over the coming months.

Retailers previously offset losses from these capped items by raising prices on unaffected products, leading to some chains, like Aldi and Spar, reporting losses last year. These chains will likely aim to return to at least minimal profitability following the end of price controls.

Some products, such as alcoholic beverages, which were not subject to mandatory discounts but saw price increases to offset losses elsewhere, might now face renewed price competition.

Read also:

• Important: Summer store hours change in Hungary, especially around Lake Balaton
• New government decision: shopping changes in Hungary from 1 July!

Featured image: depositphotos.com

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