Mihály Varga, the finance minister, in an op-ed published on Tuesday, said fiscal policy and wages only had a mild effect on inflation and the current account, and external factors were more at play.
In his article in the business daily Világgazdaság, Varga said the jump in energy prices, raw materials and transport costs, as well as the re-pricing amid the post-pandemic economy — services in particular — was largely behind the 6.5% headline inflation. Fiscal policy, he said, had an impact on inflation through price regulation and the indirect effects on demand in the economy.
Regulated prices have increased by 0.1–0.8% each year in the last seven years, the minister said, adding the government recently capped the price of fuel at the pump at 480 forints (EUR 1.3) per litre. Policymaking has, on the whole, moderated inflation, he added.
Neither has budget-related consumer demand stoked inflation, Varga wrote. Like in other EU countries, the budget deficit ticked up due to Covid- and economic recovery-related measures. Hungary’s economy has rebooted at a fast pace, and up until the summer growth exceeded the pre-epidemic period, he said, adding that investments geared towards protecting and creating jobs helped to produce the third biggest increase in employment in the EU. Varga said that when it came to wages, there was an important distinction to be drawn between gross wages and the wage costs, with the wage burden on employers falling from 28.5% to 13% over the past decade. Meanwhile, wages have grown in line with the economy’s performance, so rising wages have not really further fuelled inflation, he added. Varga said Hungary’s economy had seen the price of imports skyrocket, however. The poor exchange rate may have contributed to this, he added.
Meanwhile, the current account had turned negative by 2019, paired with strong economic growth backed by robust domestic demand and a high investment rate, he said. The Covid recession had a moderate effect on the external balance: falling imports and less repatriation of capital by foreign-owned companies partially offset tourism and other losses. While the current account deficit widened, the inflow of EU money quickened, and as a result, Hungary’s ability to secure financing abroad remained strong, he said. The first half of 2021 saw some improvement, though preliminary figures should be treated with caution, he said. Real data on the income of foreign companies will only be available after tax returns have been processed, typically in September of the year following the year, he said. Still, the recovery, he added, had various detrimental effects on the financing position in relation to the rest of the world. So, Hungary may again become a net borrower, he cautioned. The peak in this respect was likely in the fourth quarter of 2021 and the first quarter of 2022, with a current account deficit forecast at 2.8% and 2.9% of GDP, respectively.