Fuel prices frozen for three months from next week

HUNGARY - In Brief 11 Nov 2021 by Istvan Racz

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The government cabinet decided today to set a HUF480 per litre administrative maximum for the consumer prices of fuels, for three months starting from next Monday (November 15). This level is 5.1% below the current average price of gasoline-95 and 6.3% below the average price of diesel.This measure is meant to help contain inflation. Regarding the likely direct impact, it is expected to keep the average consumer prices of fuels stable in November and reduce those by 3% in December. The overall CPI should be reduced by 0.2%-point in November and by 0.4%-point in December, making its yoy change 6.8% and 6.3%, respectively, according to our standing forecast. CPI-inflation was 6.5% yoy in October, as reported the other day. However, this is only the direct impact of the price change. Indirectly, through transportation costs, some additional impact is likely to occur, though not a lot, as the reduction of costs is normally swallowed by domestic service providers, rather than being passed on to customers.The three-month cost of this administrative price cut is HUF40bn, almost insignificant in macro terms. However, it is not immediately clear, who will cover this cost and how. It may be the government, MOL, the biggest wholesalers and retailer of fuels in Hungary, or other wholesalers and retailers. Or may be there will be burden-sharing among the foregoing players.Regarding central bank policy, this measure provides significant help to the MNB to stick to its monthly 15 bps rate hike schedule at next Tuesday's (November 16) MC meeting.