Hungary's government has extended a mandatory cap on markups for a range of food products until the end of August in a bid to contain inflation, despite pledging to phase out the measure at the end of May. Retailer association OKSZ warned that the measure could lead to a wave of shop closures in rural areas.

The government introduced a 10% cap on markups for food retailers in mid-March to rein in inflation, which accelerated to 5.6% in February, with food inflation surging to 7%, two-fold the eurozone average. The profit margin cap covers 30 key food products, including poultry, dairy, flour and cooking oil. The measure was extended to non-food items earlier this month with a 15% cap on household items, also in effect until the end of the summer.

Gergely Gulyas, head of the Prime Minister's Office in a weekly press conference, described the measures as "effective tools" against unjustified price increases, and said enforcement would be a "priority" for consumer protection authorities.

According to government figures, the food markup cap has driven down prices by an average of 19.3%, with 270 products seeing price cuts of at least 30%. Officials estimate the household cap, which targets drugstore chains such as DM and Rossmann, could cut prices by around 10%. Supermarkets are exempt from the non-food measure.

The National Commerce Association (OKSZ) said the government ignored industry proposals for a phased withdrawal. The group warned the cap could jeopardise supply in smaller towns, distort competition and open the door to foreign suppliers at the expense of local producers.

One out of five small store operators, who collectively account for nearly half of food retail turnover, are considering winding up operations due to the cap. The OKSZ also warned that the restriction disproportionately hurts domestic supply chains, which are slow to rebuild, and may lead to greater reliance on foreign suppliers, harming local agriculture and food producers.

Hungary's second-largest retailer by size, Spar estimates a HUF1.5bn (€3.7mn) monthly loss from the mandatory profit margin cap, which could severely limit its ability to cover rents and wages. Analysts say the retailer may be forced to curb investment, reduce headcount, or leave vacancies unfilled if the measure remains in place.

The unorthodox policy measure is comparable to the 2022 price cap, when the large, mostly foreign-owned supermarkets were ordered to roll back prices on a dozen food staples to October 2021 prices. The European Court of Justice in September 2024, following a complaint by Spar, ruled that the price controls and stockpiling requirements violated EU competition laws.

Talks are ongoing over a possible extension of markup caps to non-subsidised medicines, but no decision has been made, Gulyas said.

The government's measures are widely seen as pre-election sweeteners, aimed at boosting its popularity ahead of the elections in 2026. They come at a time when Hungarian households are still coping with high inflation, especially that of food prices, which rose at the fastest pace in the EU between 2021 and 2024.

This is not unrelated to earlier price caps, which many economists argue contributed to the surge in inflation as retailers covered their losses by raising prices of products not covered by the mandatory price caps.