Weakening currencies also a factor
buy food or fill their fuel tanks.
A butcher at the Budapest food market, Ildiko Vardos Serfozo, said she’s seen a drop in business as customers head to multinational grocery chains that can offer discounts by buying in large wholesale quantities.
“Buyers are price sensitive and therefore often leave us behind, even if our products are high quality. Money talks,” she said. “We notice that inflation is not good for us. I’m just glad my kids don’t want to continue this family business, I don’t see much future in it.”
In nearby Poland, Barbara Grotowska, a 71-yearold pensioner, said outside a discount supermarket in the capital of Warsaw that she’s been hit hardest by her garbage collection fee nearly tripling to 88 zlotys ($21). She also lamented that the cooking oil she uses has gone up by a third of its price, to 10 zlotys ($2.40).
“That’s a real difference,” she said.
The recent pickup in inflation has caught business leaders and economists around the world by surprise.
In spring 2020, the coronavirus crushed the global economy: governments ordered lockdowns, businesses closed or slashed hours and families stayed home. Companies braced for the worst, canceling orders and putting off investments.
In an attempt to stave off economic catastrophe, wealthy countries — most notably the United States — introduced trillions of dollars worth of government aid, an economic mobilization on a scale unseen since World War II. Central banks also slashed interest rates in a bid to revive economic activity.
But those efforts to jump-start economies have had unintended consequences: as consumers felt more emboldened to spend the money they had received through government assistance or low-interest borrowing, and vaccine rollouts encouraged people to return to restaurants, bars and shops, the surge in demand tested the capacity of suppliers to keep pace.
Ports and freight yards were suddenly clogged with
shipments, and prices began to rise as global supply chains seized up — especially as new outbreaks of COVID-19 sometimes shut down factories and ports in Asia.
The rise in prices has been dramatic. The International Monetary Fund predicts that world consumer prices will rise 4.3 percent this year, the biggest jump since 2011.
It is most pronounced in
the developing economies of central and Eastern Europe, with the highest annual rates recorded in Lithuania (8.2 percent), Estonia (6.8 percent) and Hungary (6.6 percent). In Poland, one of Europe’s fastest-growing economies, inf lation came in at 6.4 percent in October, the highest rate in two decades.
Several shoppers at a vegetable stand in Warsaw said they are anxious about rising prices for staples like
bread and are expecting the situation to get worse in the new year, when energy prices are set to rise.
Piotr Molak, a 44-yearold vegetable vendor, said he has not yet had to raise prices on the potatoes, apples or carrots he sells but the cherry tomatoes he imports from Spain and Italy, which he buys in euros, have gotten far more expensive as Poland’s currency, the zloty, has weakened.
“We will mostly feel this in the new year when electricity goes up,” Molak said. “We are really going to feel it when we have to spend more on our home than on pleasure.”
The weakening of currencies across central and Eastern Europe against the U.S. dollar and euro is pushing up the price of imports and fuel and exacerbating the pinch from supply backups and other factors.
Hungary’s currency, the forint, has lost around 16 percent of its value against the dollar in the last six months and slipped to a historic low against the euro last week. That’s part of a strategy by Hungary’s central bank to keep the country competitive and attract foreign companies seeking cheap labor, said Zsolt Balassi, a portfolio manager at Hold Asset Management in Budapest.
But prices on imported goods have skyrocketed, and global oil prices set in U.S. dollars have pushed fuel costs to record levels.
“As the Hungarian forint, and actually all regional currencies, are more or less constantly weakening, this will constantly raise oil prices in our currencies,” Balassi said.