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Inflation Perception vs. Reality: Analyzing the Discrepancy in Hungary's Economic Data

Inflation Perception vs. Reality: Analyzing the Discrepancy in Hungary's Economic Data

Recent reports show a disparity between official inflation statistics and consumer experiences.
According to the latest report by Hungary's Central Statistical Office (KSH), consumer prices in December 2024 rose by an average of 4.6% year-on-year, with a 0.5% increase compared to November.

The annual average inflation rate for 2024 was recorded at 3.7%.

The data indicates significant price increases for food (5.4%), services (6.8%), and fuels (8.3%) during December.

However, experts suggest that consumers may perceive inflation as higher than these official figures due to several factors that could introduce inflationary risks in the future.

A prominent concern among consumers, highlighted by a reader's comment, is the notably high price of Hungarian butter, nearing 1,000 forints for 10 dekagrams.

Despite a decrease from inflation rates exceeding 10–20% in previous years, the December figure is nearly 1% higher than November's rate of 3.7%.

Experts indicate several reasons why many consumers feel inflation exceeds the official statistics.

László Molnár, CEO of GKI Economic Research, noted that the official inflation data does not account for costs such as the 50 forint deposit fee for bottles, introduced mid-2023. Although consumers receive refunds upon bottle returns, the fee could contribute an additional percentage point to the annual or monthly consumer price index.

Molnár asserts that such hidden costs might lead consumers to perceive inflation as higher than reported.

Moreover, the prices of gas and electricity, where occasional price drops are misleadingly reported due to consumption accounting methods, also skew inflation data.

Eurostat recommendations could lead to adjustments in these methods, potentially increasing the 2023 inflation rate by nearly a percentage point if corrected.

These minor discrepancies cumulatively affect groups such as pensioners, who might face higher actual inflation than indicated by the pensioner consumer price index, estimated at 3.7%.

Molnár also remarked on the difficulties in evaluating the consumer basket weights used by KSH, which impact perceived inflation.

If the actual weight of food items in consumers' expenditure is higher than reported – potentially 40% instead of the indicated 30% – individuals would perceive inflation as higher due to the considerable increase in food prices.

In contrast, wealthier individuals, whose food consumption constitutes a smaller expenditure fraction, might perceive lower inflation.

Generally, those with lower incomes tend to spend a higher proportion of their earnings on rapidly inflating necessities, such as food and essential services, thus experiencing a sharper inflationary impact.

Similar sentiments were echoed by Peter Kiss, Investment Director at Amundi Asset Management, who noted that lower-income groups could feel the brunt of high food inflation more acutely.

The discrepancy between perceived and official inflation is exacerbated when frequently purchased basic food items experience above-average price hikes, as suggested by data and inflation expectations tracked by Hungary's central bank.

Other factors that might widen the gap between statistical and perceived inflation include persistent high prices of recent consumer electronics models, despite reports of price decreases (e.g., a 0.9% drop in 2024), as consumers tend to purchase the latest and priciest gadgets.

Additionally, individuals relying on personal vehicles due to inadequate public transportation, particularly in rural areas, face higher costs due to increased fuel prices linked to excise tax hikes.

These individuals are likely to perceive inflation as more significant, especially if coupled with low incomes.

In summary, consumers who spend a higher proportion of their budget on products and services that have experienced steeper price increases might perceive inflation rates closer to 6–7%, rather than the official 3.7%.

This discrepancy occurs despite prices remaining elevated following previous high inflation periods, adding complexity to the current inflation dynamics.
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