Layoffs, bankruptcies, shoddy products - What could be the price of Hungary's new measures?

Extending the price freeze to even more products could place a further significant burden on operators already struggling with serious problems, say analysts interviewed by Portfolio. It has not been revealed how many more products will be added to the price cap basket, nor at what price level, but the extension of the measure is certain.

Food retailing is already falling due to the drastic 35% food inflation, and products could become even more expensive in the coming months, which will further dampen demand. In other words, shops have found themselves in an already unfavourable economic situation and are now facing another difficulty.

Some major players in Hungary are thinking of not opening some of their stores in January. It is simply not worth it,

a market analyst told Portfolio.

"Retailers have two choices. Either they can continue to raise the prices of products not affected by the price cap to compensate for the additional burden, or they can close down," he added. There is nothing to stop them from selling products outside the scope of the measure for more. They have already been doing this, i.e. use price hikes to offset the losses incurred on the products with capped prices.

there's no way to prevent the relentless rise of food prices by price freezes, experts warn.

Extending the price freeze to additional products, including an ever greater slice of food retailing in the scope of regulated prices leads to a severe market distortion. Retailers have already been hit hard by the significant rise in wages, the marked depreciation of the forint, the announcement of the special retail tax and the surge in energy prices.

I think that many will try shorter opening hours, because they need to save money. That means fewer employees, so there could be a wave of redundancies,

one of the experts told Portfolio. He added that "quality degradation is also guaranteed. Only cheap products will be bought by shopkeepers from suppliers."

There is already a trend for shoppers to buy own-brand (white label), cheaper, or lower quality products as prices are driven down, and retailers are adapting to this. Now there seems to be another argument for them to put cheaper products on the shelves, as they have less to lose in the case of regulated-price products. The expert added: "Of course, these are still legally compliant products, but they will only meet the minimum requirements.

Sales have shifted towards lower-priced products. Demand is already shifting from convenience stores to discounters. With the new burden, many shops could close down, even before Christmas,

said one expert.

One analyst noted that non-market conforming measures will not lead to lower inflation. The forint weakened against the euro today, while the zloty remained stable. The fall in the forint may be due to Hungary's maverick economic policy, which is a problem because we pay the price of the weakening immediately through imported goods.

With inflation set to remain high next year, at 13-15%, the big question is when the government will phase out the price caps. Should the measure cover a too large share of the inflation basket, lifting the price freezes could trigger another wave of inflation, making it increasingly difficult to let go of the regulated prices without another surge of price increases.

There are analysts who do not believe skyrocketing prices have triggered the measure. He says the extension of the price freezes could well be the realisation of a government objective that has been voiced for years, namely, to increase the share of Hungarian ownership in the retail sector. Price freezes devalue retail chains and improve the bargaining position of potential Hungarian buyers.

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