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Inflation higher, growth rate lower than expected

May 2nd, 2022

Economists across the political spectrum investigate the causes and possible remedies of soaring inflation.

According to the estimates of the Ministry of Finance, published on Friday, inflation will be 8.9 per cent in 2022, and the economy will grow by 4.3 per cent. The previous projection of the National Bank in March estimated rates at 7.9 to 9.4 per cent inflation, 3.9 to 5.7 per cent growth and a 4.9 per cent public deficit for the current year. In its April report, the IMF projected 10.3 per cent inflation in Hungary – the highest rate in the Visegrád Group, but lower than in the Baltic countries.

Magyar Hírlap’s Károly Lóránt calls on the government to balance the budget and reduce debt. The pro-government economist recalls that between 2010 and 2016, Hungary managed to reduce the public deficit and, as a result, public debt decreased. Lóránt hopes that after another landslide victory, the government will balance the budget not through restrictions as advocated by neoliberal economists and politicians, but rather by increasing investment by Hungarian companies that keep profit in the country. All this, Lóránt notes, will require quite some political courage.

Writing in Telex, Concorde Securities macroeconomy analyst Sándor Jobbágy thinks that tackling inflation which results mostly from global processes will present a very difficult challenge for the government. Jobbágy points out that the government risks boosting inflation further if it decides to inflate revenues in order to incentivize growth and subsidize energy prices.

Writing in Élet és Irodalom, László Békesi, Minister of Finance under the last Communist government in 1989-90 believes that the government will need to introduce major restrictions sooner or later to stabilize the economy. The now liberal economist believes that in order to slow down inflation, the government will need to increase taxes.

In Magyar Nemzet, Ferenc Kis accuses the Left of serving the interests of foreign capital when it criticises the government’s price caps. The pro-government columnist thinks that the opposition has abandoned its traditional values, and instead of advocating social solidarity and helping Hungarians in need, they follow a ‘globalist, anti-national, market fundamentalist’ path that puts the ‘super profit’ of multinational companies first.

Népszava’s Miklós Bonta takes it for granted that the government will use higher revenues boosted by inflation to further increase family benefits and subsidies. The left-wing columnist also thinks that the government will soon impose new taxes on multinational companies.

On Mandiner, Géza Sebestyén, an analyst at the pro-government think tank Mathias Corvinus Collegium  argues that in historical comparison, Hungarian inflation figures have significantly improved. In the years until the end of 2021, Hungarian inflation rates neared Western European levels, while this year, even February’s 8.3 per cent inflation rate was below the OECD average. Sebestény notes that the Hungarian government and the National Bank have already taken very strong measures to keep inflation at bay. As examples, Sebestyén mentions the extension of price caps (see BudaPost April 30) and interest rate hikes by the National Bank.

In Magyar Hang, Péter Hajdú points out that high inflation devours Forint savings, as interest paid on deposits (and even on some government bonds) is lower than inflation. On 24.hu, Zsuzsanna Tamás Szabó fears that rapid inflation will also harm pensioners despite the government’s recent announcement of pension hikes.

In Magyar Narancs, Balázs Váradi writes that inflation is a double-edged sword. The liberal economist writes that inflation boosts budget revenues and helps the government keep public deficit relatively low while spending more, but employees whose wages do not keep pace with inflation will be worse off. Váradi wonders if the government will use inflation to demonise financial speculation, foreign retail chains and liberals, by blaming inflation on them.

On Mozgástér blog, Zoltán Kiszelly contends that inflation is fuelled by the EU. The pro-government analyst suggests that the main cause of soaring inflation is EU sanctions against Russian energy supplies. He speculates that the EU’s response to the coronavirus as well as the Ukraine war are part of the so-called ‘Great Reset’ masterplan, according to which global elites want to impoverish the middle classes in order to maximise their own profits.

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