Hungary's Orban launches food price controls as inflation rebounds

By Krisztina Fenyo and Gergely Szakacs

BUDAPEST (Reuters) - Food price controls launched by Prime Minister Viktor Orban went into effect in Hungary on Monday after inflation hit the highest level in the European Union, potentially denting the veteran leader's hopes of re-election in 2026.

Hungary has endured the worst inflationary surge in the 27-state EU since Russia's 2022 invasion of Ukraine and prices remain a big concern for households, with official data released last week showing food prices had risen by 7.1% in a year.

Squeezed by the inflation rebound and the prospect of a weak recovery, Orban has announced large tax cuts for mothers and imposed a cap on retail price margins on 30 food groups to keep prices under control.

"If the government sees that retail chains do not adhere to the regulation, we will extend it to all food categories! The government is also ready to relaunch regulated prices as a last resort," the Economy Ministry said.

Annual inflation in Hungary stood at 5.7% in January. Based on the latest comparable Eurostat data, that was the highest rate among EU member states and more than double the bloc's average of 2.8%.

During the previous big inflationary surge, food prices rose to average EU levels during 2022-23 and the government imposed price controls then too, a central bank survey found.

The bank said the earlier price surge had been caused partly by low productivity and high energy intensity in the food industry - factors which persisted even after inflation started retreating.

The previous move to cap food prices backfired as companies offset losses with price increases on other products, the bank said.

Hungarian retail group OKSZ says the latest measures could cut food inflation by 1-2 percentage points if there are no further price rises in the supply chain.

ING economist Peter Virovacz said inflation could peak at 6.5% in October, with average inflation rising to 5.6%. That would raise the prospect of Hungary running the EU's highest inflation for the second time in three years.

The stakes have also been raised for Orban, Virovacz said. He referred to last year's U.S. election, in which Donald Trump returned to the White House amid voter frustration over persistent inflation.

Analysts at Wood & Company said the rebound in Hungary's inflation could also test the National Bank of Hungary's pain threshold under new Governor Mihaly Varga, as the rises could eat into the bank's positive rate cushion.

The rebound in inflation, driven in part by falls in the forint, has forced the bank to pause rate cuts at the EU's joint-highest level of 6.5%.

"We have seen a brutal increase in prices and as far as I can see, they just keep climbing," said Peter Hegedus while shopping for groceries in a Budapest market hall. "There is enormous tension in everyone."

(Writing by Gergely Szakacs, Editing by Timothy Heritage)