Orbán demonstrates Erdogan-level economic illiteracy in his remarks about handling inflation.
The government announced that they are dealing with inflation: they will increase wages to catch up with it.
Indeed, Orbán can’t shut up about wage and pension increases as if they were his own, personal gift, even if they are long overdue after years of being nominally or de facto frozen. But it is about next year’s elections, not the inflation – hence the dumbass comment about fighting inflation by pouring more money into people’s pockets (nominally) to spend on the already overheated economy. But this is not the only inflationary policy of the Orbán-government. They also churn out state subsidies and massive billions in public tenders (to cronies). They weaken the currency and increase the debt and the deficit. Inflation in Hungary is not about some container terminals – it is politically made.
In an interview György Surányi, former central bank governor and professor of economics remarks that Orbán’s message is the equivalent of promising to put out a fire by adding some gasoline.
He also expresses disbelief about the official inflation numbers for a number of reasons. Fuel prices, for example, have been down-weighed in the inflation basket compared to previous years to create better the results despite the price hike. And the official inflation number only calculates with 3-4% of increase in the price of used cars – an obvious nonsense that doesn’t correspond to reality that is around 10-12% according to retailers. The same has happened to services: the official data doesn’t correspond to anyone’s purchasing basket – if they are even based on actual figures.
But the biggest distortion is the absence of housing and construction works on homes – an item whose price has skyrocketed due to the avalanche of state handouts for buying and renovating houses, driving up prices on the market (and soaking up the subsidies).
But that, too, can be sold politically as an attempt to help people cope with the inflation, rather than causing it, as it were.
According to Surányi, the anticipated 12.7% wage increase in the economy fueled by Orbán’s election giveaway is untenable next to the (allegedly) 5% growth, and the all-time record deficit and national debt are not a good combination.
Inflation has also been a political product as the government worked together with the central bank to depreciate the currency that went from 267 against the euro in around 2010 to 367 today. It allows the government to print their way out of debt due to the intentionally increased ratio of forint-denominated debt in the national debt but it makes imports more expensive for us.
Record high inflation, record weak currency, record high debt, record budget deficit, record election spending
The deflationary environment in the world economy has made life easier for Orbán to conduct inflationary policies until now, but the world economy won’t help him stay in power forever. He has been anticipating the next downturn since 2018 – and with appropriate concern since he had never governed through a recession, he had only ever been prime minister during economic exuberance – and only took over budgets that were balanced by his predecessors’ austerity. Each time.
It is a race against time whether the state of the economy catches up with him before April 2022 – or whether he can gaslight everyone that we are living better because we received more cash to buy for the same amount of services as last year. It looks like a third of people blame him already – the rest might be buying his excuse that Brussels wants to increase prices and some think it is Soros. Seriously. Others might have the image of the Ever Given stuck in their mind and imagine that the pandemic must be tripping up poor Orbán, who – if we listen to him – is very, very good at making the economy. He thinks it is a politician’s job – and the majority agree with him. That might be the sickest legacy he will leave behind – right after corruption, state-dependence, and the feeling that neither can be changed.