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Gergely akacs

BUDAPEST/BUCHAREST – Matei Susnea traversed Bucharest’s frozen streets looking for a Christmas tree he could afford. However, with the rising cost of daily items, he is afraid he will be unable to provide this gift to his family.

The 42-year old Romanian construction worker feels the pinch like millions others. It is the result of tight labour market conditions, supply chain frictions, and rising wages.

Prices of staple items in the region have been rising fast for more than a decade. They are up around 7% compared to a year ago, with some instances even higher. Romania’s capital makes Christmas trees 20%-30% less expensive.

For me, 100 lei is nearly $23. Susnea, father of two said finding a good tree in this year’s season is less likely. The prices of almost everything have increased very quickly.”

The European Union has been leading the region’s central bank in raising interest rates since June. These banks seem to be confident that there is still a way out of the debilitating spiraling price.

Evidence of second-round inflationary effects by economists and central banksers shows that wages have already risen and both consumers and employers are adapting their behavior.

“Inflationary trends are not permanent, according to the official view, however, if they become more persistent, then that will lead to a cycle of self-fulfillment, and Sandor Baja is general manager at Randstad, a staffing company in Hungary.

“I believe employers will absolutely need to increase wages in the double-digits average next year. It is because of the current labour market.

According to a survey done by STEM/MARK in November, half of Czech Republic’s employees will be ready to leave their job if they are not paid the right wages, according to a report. A survey of business alliances in October revealed that more than 50% will raise prices by more than 5% next year.

BIG-SPENDING BUDGETS?

Recent data shows that inflation is at around 7.7% in the region. It was at its highest level in 20 years in Poland. There were 13-year highs in Romania, Czech Republic, and Hungary. The Hungarian 14-year record also indicates inflation.

According to central bank projections, inflation will average close to 6.6% in these four countries next year. This is the highest level since 2008’s financial crisis.

James Reilly, Capital Economics analyst predicts that underlying prices will continue to keep East European populations high through 2023. Food alone could add an additional percentage point by 2022.

He stated that further rate rises would have a cooling effect but large-spending budgets could add to the problem, particularly in Poland or Hungary.

Economists believe that the Polish government’s tax cut on petrol and gasoline will decrease the level of the highest inflation in 2022. However, cash transfers to household could cause higher inflation later this year.

Some Polish shoppers are already feeling the impact of rising prices.

This is especially evident when one shops every day. It includes vegetables, fruits, as well as other daily produce. Izabela Sarnocinska, a Warsaw resident said that people often draw a budget before they buy presents.

“When I buy the same thing I always buy in the store, I don’t pay 150 zlotys anymore. Now I only have to pay 200 zlotys.”

INFLATION CASCADE

Hungary’s Prime Minister Viktor Orban is up against a tough election next year and has increased the minimum wage almost 20%. The central bank acknowledged that the inflation rate has been rising from fuel prices to processed goods.

Food for Life, which offers free meals for over 13,000 Hungarians in need, had previously offered around 22 items. However, it was forced to drop a number of its goods to make room for a dozen. Attila Skanyi-Karl (the head) said the charity’s founder, Food for Life, that “the prices are sky-high”.

In Hungary, an association representing construction materials claims that prices have risen 10%-20% due to rising transportation and energy costs.

Some people at a Budapest market claim that they now spend about 100,000 forints ($310) per month on food, which is roughly half of an average pension.

Zsoka, 62, said she didn’t know exactly what everything cost. “All that I know for sure is that I can now afford much more than I did before, and I have the same money.”

($1 = 322.67 forints)

($1 = 4.3907 lei)