1999 saw the same, 4-5 percent annual inflation rate drop that has been characteristic of every year since 1995 – consumer prices went up 10 percent during the year. This year’s inflation rate will be heavily influenced by oil prices on the world market. Last year’s average 18 USD per barrel price reached 30 USD in March 2000. Accordingly, many businesses expect as much as a 10 percent inflation rate for the year. Economic research institutes forecast a lower, 8.0-8.5 rate. In a survey conducted by Ecostat among the one hundred largest companies, most thought a 5-10 percent inflation rate likely – apparently businesses do not intend to raise prices too much.
International experts now uniformly believe that oil prices have reached a maximum after which they must start to go down steadily for some time. In case spring oil price cuts do not take the average price below 22 USD and the government fails to take measures to counter high Hungarian oil product prices the annual inflation rate for the present year cannot be less than 9-10 percent. If oil prices stay under an average 18 USD in 2000, an approximately 8 percent inflation rate might be a realistic estimate. However, this rate is significantly higher than the one expected at the time when the budget was made – the Ministry of Finance assumed a figure of 6.3 percent. Consequently, numerous income-related and other financial correlations established earlier now need to be rethought with the necessary corrections made. All this should be implemented without breaking the momentum of growth and endangering economic balance.
Another less influential, though by no means irrelevant factor is the likely rise of agricultural product prices in 2000. Production losses caused by floods and inland water and attempts at raising prices to counter-balance overall low profitablity may both lead to that. Changes in demand resulting from lower interest rates and other regulations aimed at stimulating the economy may have similar consequences. By the end of the 1990s public consumption fell back to the level that it was 20 years earlier. During the past two years and especially in the second half of 1999 retail trade has experienced a significant boom. This of course is not the same as consumption and – apart from people realizing formerly postponed spendings thanks to higher real wages – is caused by many factors. For instance, 9 percent of retail trade is carried out in shopping centers and this ratio is constantly on the rise. Very often retail merchants and small businesses purchase goods there as well. As a result, a certain portion of consumption appears cumulatively in retail trade, while on the other hand, statistics report a part of business expenses as consumption. Another factor is that with the spread of shopping centers – which also means access to more reliable sales figures – an until now “grey” portion of consumption turns “white”. Turnover is also increased as more and more appliances – purchased earlier abroad – are bought locally as they become available at home, sometimes at even lower prices than abroad. And finally, a slow but steady improvement of living standars provides additional motivation for people to buy goods on credit. Based on all these we can safely say that the growth of retail trade and consumption is the result not only of a temporary increase in spending as earlier postponed purchases are realized, but of a steady boom.
The interest rate cut carried out by the central bank this year raised concerns that lower credit rates will be followed by a drop in deposit rates which in turn could lead to a decrease in savings. However, as the period between 1994 and 1997 showed, public savings did not shrink even after an almost 10 percent drop in deposit rates and so, this is not likely to happen now, either. What can be expected, however, is that a part of public savings will now be channeled into real estate investments.
