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On March 17, 2025, Prime Minister Viktor Orbán’s government introduced a profit-margin cap across thirty essential goods, beefing up oversight to prevent cross-pricing strategies (for example, offsetting a cut on fish by hiking detergent prices). Previous rounds of price controls in 2022—which directly capped prices on only six to eight food items—ended up exacerbating inflation resulting in ambiguous expectations on the recent intervention.

Although March 2025 inflation figures showed modest downward pressure on food prices, it’s important to remember that the Food CPI is calculated over just 20 sampling days—and only four of those days in March registered price declines. Consequently, the observed dip appears to reflect market expectations more than the policy’s direct impact, and the intervention’s full effects have yet to materialize.

That said, our proprietary Food-Proxy Basket for Hungary recorded an abrupt, sharp decline immediately after the margin cap took effect—an outcome we have not observed under previous, narrower price-cap schemes (Figure 1).

Figure 1

Given preliminary evidence of lower prices for select essential items, like butter and whole chicken, from weekly data surveyed from March 17 to April 14, 2025, we expect to continued downward pressure from food throughout April 2025 (Figure 2).

Figure 2

According to other estimates, some non-essential products like pasta, sausages, cold, cuts, and fruits saw increases of over 40%. Available data suggest that fruits and other vegetables not covered by the margin cap have increased with respect to essential goods (Figure 3).

Figure 3

This is consistent with Turnleaf’s earlier assumption that cross-pricing on non-essential items was a likely outcome, despite threats by Orban’s government of heavy fines for avoiding the margin cap. Cross-pricing may also be driven by substitution effects to products that are not bound to quantity restrictions. Retailers like Lidl, Spar, and Tesco have induced quantity restrictions to manage demand. However, believe these effects are limited given their representation in our Food Proxy Basket.

Amid these shifting price dynamics, consumer inflation expectations remain a crucial signal of the policy’s efficacy. While one-year ahead expectations continue to climb, their rate of increase has moderated. Meanwhile, retail sales grew by 3.3 % YoY in February 2025—supported by a 6.1 % YoY rise in real wages as of December 2024. Tracking these indicators will be essential to gauge how much of a premium households are prepared to pay for food going forward.

Finally, on May 21, 2025, policymakers will decide whether to extend the margin freeze through the end of summer, contingent on food inflation remaining persistently below 5 % YoY. They will also weigh expanding the freeze to include household and toiletry items prone to cross-pricing. Nagy forecasts April 2025 inflation at roughly 4 % YoY—nearly in line with Turnleaf’s 3.9 % YoY estimate (Figure 4).

Figure 4

Although ending price controls could introduce upward inflationary pressures, the uncertainty around their withdrawal prompts our baseline model to assume an extension. We will revisit this stance once the final April inflation figures are released.

Contribution Word Cloud for CPI YoY NSA for Hungary, Mar 2025

Subscribers can gain insights into the key drivers influencing Turnleaf’s CPI forecasts by examining our Word Cloud. Each term represents an economic indicator’s relative importance in our CPI model. The size of each word reflects its contribution magnitude to overall inflation predictions, helping subscribers quickly identify the most influential factors. The color coding further clarifies each indicator’s impact direction: blue words represent indicators with a disinflationary effect on CPI, while red words highlight inflationary factors. For instance, ‘Inflation Market Forecast’ is  large, indicating their significant weight in the model, while its color suggests whether it contribute to higher or lower inflation trends. This Word Cloud enables a quick, visual analysis of the complex landscape of inflationary and disinflationary influences in our forecasting model.