The government has reduced and kept the war-induced inflation at a low level thanks to mandatory discount actions, which made essential food items such as bread, meat, milk, and various vegetables cheaper for families. The measure achieved its goal, so it will be phased out starting from 1 July, while the government will continue to operate the online price monitoring system to maintain and stimulate retail price competition, the Ministry of National Economy (NGM) announced in a statement on Tuesday.
The mandatory discount system was introduced by the government on 1 June 2023 based on the proposal of the Ministry for National Economy
to combat the inflation shock caused by the war and misguided sanctions, and to protect families and pensioners.
In August 2023, the government increased the mandatory discount rate for retailers with over HUF 1 billion in sales by one and a half times and significantly expanded the range of affected products. According to the regulation, the mandatory discount rate for 20 product groups increased from at least 10 per cent to at least 15 per cent compared to the lowest price applied in the previous 30 days. Additionally, the mandatory discount rules were extended to the previous eight price-capped product types, where all products had to be offered at a minimum of 15 per cent cheaper than the purchase price at least for two product types weekly, the NGM recalled. Thanks to the measure, families could buy basic food categories much cheaper, such as poultry meat, milk, sour cream and substitutes, cheese, bread, bakery products, pasta, rice, fresh fruit, and fresh vegetables.
The mandatory discount system, together with the online price monitoring, effectively contributed to the government’s goal of first reducing inflation to a single digit and then bringing it back to a low level, that is, around 4 per cent. Moreover, the mandatory discount and the online price monitoring generated fierce competition in retail. As a result, food inflation fell to 1 per cent year-on-year in recent months, and in May, the prices of food decreased compared to the previous month.
As a result of the inflation reduction, real wages have been rising again since September 2023,
meaning that families’ income is worth more, contributing to the gradual easing of caution motives and thus increasing consumption. This is reflected in the continuous rise in retail sales and the record-high tourism demand. All this supports the recovery of the economy and the acceleration of its growth rate.
Upon examining the inflation processes and the related set of measures, the government concluded that the mandatory discount achieved its goal. However, it is still necessary to maintain increased competition among retail players because it serves the interests of families. Consequently, the government decided that from 1 July 2024, it will phase out mandatory discounting while continuing to operate the online price monitoring system to support competition, the NGM statement summarized.
Related articles:
