Inflation is a major concern for many economies, but for Hungary, rising prices are especially pronounced. Despite a recent dip in Hungary’s inflation rate, real wages in Hungary continue to drop as the cost of living from basic necessities to luxurious items increases. This article will focus on the negative impact of the Hungarian real wage drop and the sky-high inflation that has led to it.
What is Inflation?
Inflation is an economic measure of the rate at which prices for goods and services over time increase. It reflects the average change in prices over a 12-month period and is measured as the percentage rate increase in the Consumer Price Index for a specific commodity or service. It is an important factor in determining the health of an economy.
The Effects of Inflation on Hungary
Inflation is an important factor in determining the Hungarian economy’s health, as it impacts several aspects such as wages, employment levels and production costs. Inflation in Hungary has been increasing since 2017, largely due to the rise in import costs as a result of its currency’s weak exchange rate. This has hindered Hungary’s economic growth and resulted in a drop in real wages.
Real Wages Drop in Hungary
Real wages in Hungary have been decreasing since 2018 as a result of rising inflation. This has had a significant impact on the Hungarian population, who are not able to receive salary increases that match the rising cost of living. This drop in real wages has had a negative effect on purchasing power, with many long-term effects on the average Hungarian’s financial wellbeing is yet to be seen.
What Are The Causes of Sky-High Inflation in Hungary?
There are several factors that contribute to sky-high inflation in Hungary, including:
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Low Euro Exchange Rate: A low exchange rate for the Euro leads to an increase in import costs. This, in turn, has a knock-on effect on inflation in Hungary.
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Increase in Prices of Basic Commodities: The rise in price for essential commodities such as food, fuel, and clothing has been significantly higher than the average salary increase, leading to a drop in real wages.
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Increasing Interest Rates: The Hungarian Central Bank has raised interest rates in order to control inflation, and push the inflation rate down. This has directly led to a drop in purchasing power as a result of higher mortgage costs and a decrease in the money available to people.
The drastic drop in real wages and sky-high inflation in Hungary has had a significant impact on the population. As the cost of living increases, the average person isn’t able to receive salary increases that match it. This has resulted in a decrease in purchasing power, making it difficult for many people to manage their finances. It is essential for Hungary to tackle rising inflation in order to release the population from poverty and, eventually, improve the overall wellbeing of individuals.