Key Takeaways:
- Hungary has the highest inflation rate in Europe – double the rate of any other country.
- A nearly 20% minimum wage increase puts pressure on companies to raise wage costs.
- Since June 2021, the National Bank of Hungary has raised interest rates by 1,200 bps, the highest level in Central Europe.
WISCONSIN (CoinChapter.com) — If an average inflation rate of 10.1% in Europe is a struggle, then Hungary’s 23.1% will certainly grab your attention. Inflation in Europe is forecasted to decline in 2023 but remains much higher than desired. Estimates expect around 6.1% and 2024 a significant decrease to 2.6%.
Why is Hungary higher if Europe is living with a 10.1% inflation rate? There are answers, and it is primarily a governing management problem.
György Matolcsy, head of the National Bank of Hungary (NBH), criticized the government’s economic policy. Mr. Matolcsy said, “We have to face the fact that our financial, macroeconomic indicators are among the worst or second worst in the European Union.”
Hungary’s inflation might go as high as 25% in the first quarter of next year, according to nationalist Prime Minister Viktor Orban. As a result, the government extended price caps on daily food staples such as eggs, flour, milk, sugar, and vegetable oil until the end of April.
Employment Mess
Hungary has other problems besides food prices, and that is employment. As a result, the country decided to raise minimum working wages by nearly 20% in 2021 – the highest raise in the European Union (EU).
Wage increases at those extremes have done nothing short of putting pressure on companies to, in turn, raise associated business costs. Rising costs of employment, goods, and services follow inflation.
Other nations with higher inflation than Hungary, such as Turkey and Argentina, are experiencing disproportionate numbers. But Hungary is economically distancing itself from other members of the EU.
Not Throwing In The Towel
The NBH is not rolling over and living like there is no way out of inflation. Some officials, such as Mr. Matolcsy, are critical, but the bank raised interest rates by 125 basis points (bps) at its meeting in September.
Since June of 2021, the bank has raised rates of 1,200 bps to the highest level in Central Europe. After such aggressive rate hiking for the past year and a half, the NBH said they would finally pause to learn if inflation expectations will be met and sustained.
