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Retail

New Price Tags On Display As Orban Tries To Get Hungarians To Spend Again

By Reuters
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New Price Tags On Display As Orban Tries To Get Hungarians To Spend Again

Price warnings on packaged food products that have shrunk in size went on display in Hungary's supermarkets as part of a government drive to boost retail spending among Hungarians hit by the European Union's worst food price spike.

Hungary's retail sales slumped last year as prices surged, putting pressure on nationalist prime minister Viktor Orban, who faces European Parliament and local government elections in June, to take action.

He needs to drag the economy out of last year's recession but this is tough given a surge in annual inflation to 17.6%, the highest in the EU.

The new rules that take effect from 1 March require large food retailers with an annual turnover above 1 billion forints ($2.74 million) to display warnings on products that have shrunk in size compared with the period between 1 January 2020 and 1 July 2023.

Price labels on supermarket shelves show a big red exclamation mark and text which says: 'Caution, smaller product size.'

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The aim is to try and restore confidence by highlighting a practice by some food makers that shrinks the size of their packaged goods while keeping prices unchanged.

Making products smaller and selling them for the same price has been one response by some retailers and manufacturers to rising costs.

Food retailers contacted by Reuters declined to comment.

Product Range

A list published by the Hungarian Food Safety Authority includes hundreds of products ranging from ice creams to tooth paste and frozen vegetables.

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The country's inflation rate fell to 3.8% in January from more than 25% a year ago, but Hungarians shopping for groceries early on Friday (1 March) were still cautious.

"I only just started thinking a couple of weeks ago about when these exorbitant price increases will end," said Krisztina Kovacs, 46, a financial adviser. "Cutting the packaging size is a sort of price hike, too. I cannot find the words."

"Many thanks for signalling these (size changes), but we are not really better off for that. I don't think this will help."

Retail sales fell by 7.9% last year as Hungarians faced the EU's sharpest spike in food prices between mid-2021 and the end of 2023, with grocery prices rising more than 56% compared with just 23.4% in the euro zone, based on central bank data.

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Hungarian grocery prices are now nearly on a par with EU average levels, while salaries in the country are at just 41% of the EU average, based on Eurostat data.

"Wages are nowhere, really, and this is the real problem, because before long, the costs of living (in Hungary) will catch up to those in rich countries," said Benedek Honner, a 20-year-old university student.

Retail Sentiment

A European Commission survey published this week showed Hungarian retail sentiment remained the weakest in central Europe in February, while a Hungarian consumer confidence indicator also showed deteriorating sentiment last month.

The Economy Ministry said it hoped the price warning measure would help to restore consumption. Orban's government is targeting economic growth of around 4% this year, a far cry from the 2.7% pace seen in a Reuters poll last month.

On Tuesday, Hungary's central bank said consumers remained cautious after the high inflation episode of the past two years had depleted their financial assets, which they were likely to replenish before ramping up spending.

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