Rising Service Costs Drive Inflation Ahead of Food Prices
Service sector price increases, fueled by wage inflation and tax hikes, dominate national inflation trends.
Inflation within the domestic economy is primarily being propelled by rising service costs, rather than food prices.
Many service companies are passing on their increasing expenses to consumers.
Additionally, tax and fee hikes significantly contribute to price increases across various sub-sectors.
Despite efforts by the Ministry of Economic Affairs to intervene in the banking and telecommunications sectors, authorities are largely impotent in controlling the soaring prices in most service categories.
Government communication has shifted focus towards rising food prices, with the Ministry of Economic Affairs (NGM) directly targeting retailers and suppliers, holding them accountable for price hikes.
A recent anti-inflation measure has introduced a margin cap on 30 categories of food products, effective from March 17, requiring retailers with net revenues exceeding 1 billion forints to limit their margins to 10 percent.
However, the main driver of inflation has consistently been the sharp increase in service prices.
Since November 2023, service costs have recorded the highest inflation rates within the consumer price index, according to data from the Central Statistical Office (KSH).
This trend continued into January 2024, where food prices rose by an average of 6 percent, compared to an 8.5 percent increase in service prices.
The trend persisted into February, with food prices increasing by 7.1 percent, while services saw an average rise of 9.2 percent.
In some service areas, the level of price increase mirrors the rampant inflation experienced in recent years.
In the KSH's detailed consumer price index, 24 services exhibited a price increase above the average of 9.2 percent from February 2023 to February 2024. Among these, the highest increases were observed in the category of 'other services not elsewhere classified' at 19.2 percent, followed by additional services related to passenger transport at 16.3 percent, and telecommunications and fax services at 16 percent.
Wage inflation considerably influences the price increases in the service sector.
The rising wage costs in service companies contribute to a larger proportion of total cost increases compared to sectors such as trade or industry.
Consequently, businesses typically pass these elevating costs onto consumers, leading to a higher overall price level.
Many service companies are passing on their increasing expenses to consumers.
Additionally, tax and fee hikes significantly contribute to price increases across various sub-sectors.
Despite efforts by the Ministry of Economic Affairs to intervene in the banking and telecommunications sectors, authorities are largely impotent in controlling the soaring prices in most service categories.
Government communication has shifted focus towards rising food prices, with the Ministry of Economic Affairs (NGM) directly targeting retailers and suppliers, holding them accountable for price hikes.
A recent anti-inflation measure has introduced a margin cap on 30 categories of food products, effective from March 17, requiring retailers with net revenues exceeding 1 billion forints to limit their margins to 10 percent.
However, the main driver of inflation has consistently been the sharp increase in service prices.
Since November 2023, service costs have recorded the highest inflation rates within the consumer price index, according to data from the Central Statistical Office (KSH).
This trend continued into January 2024, where food prices rose by an average of 6 percent, compared to an 8.5 percent increase in service prices.
The trend persisted into February, with food prices increasing by 7.1 percent, while services saw an average rise of 9.2 percent.
In some service areas, the level of price increase mirrors the rampant inflation experienced in recent years.
In the KSH's detailed consumer price index, 24 services exhibited a price increase above the average of 9.2 percent from February 2023 to February 2024. Among these, the highest increases were observed in the category of 'other services not elsewhere classified' at 19.2 percent, followed by additional services related to passenger transport at 16.3 percent, and telecommunications and fax services at 16 percent.
Wage inflation considerably influences the price increases in the service sector.
The rising wage costs in service companies contribute to a larger proportion of total cost increases compared to sectors such as trade or industry.
Consequently, businesses typically pass these elevating costs onto consumers, leading to a higher overall price level.
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