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Capping prices, a solution against inflation?

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In the fight against inflation, Hungary is preparing its own weapons. The Central European State establishes from 1er February control of the prices of six essential foodstuffs, including milk and wheat flour. The targeted foodstuffs will have to return to (and maintain) their prices of last October 15. In 2021, Hungarian inflation reached a record level: 6.6%.

→ READ. Inflation: food products will increase in turn

Already in the fall, President Viktor Orban decided to cap the price of gasoline. These measures to fight inflation come as the legislative elections will take place on 3 April.

Dealing with inflation

Can price control really be a solution to stem the rise in labels, observed almost everywhere in the world in a context of post-pandemic economic recovery? It is an understatement to say that there is no consensus among economists on this issue. In a column published in the Guardian, Professor Isabella Weber of the University of Massachusetts castigated these “large companies in a dominant position in the market that have used supply problems as an opportunity to increase their prices and make historic profits”. In other words, these companies, helped during the crisis, feed inflation in the same way as bottlenecks.

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Isabella Weber recommends, in these specific cases, to regulate prices, the time to restore the supply chains. Controls of price strategies could also make it possible to have monetary stability and to redirect public investments towards the sectors of economic resilience, limitation of climate change and search for carbon neutrality., she believes.

“Costly”

The first reactions came from Twitter where the Nobel Prize in economics Paul Krugman went there with his critical observations. “We have inflation because the economy is expanding with supply chains struggling to keep up with the boom in consumer goods. (…) Inflation will subside as demand calms down and supply chains adjust. A price control would prevent any adjustment», he snapped.

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“In the face of inflation, not all households are in the same boat : there are much less costly and much more effective policies than price controls, whether taxation, targeted aid transfers, etc., believes for his part Ludovic Subran, chief economist at Allianz, the insurance giant. “Price control is the poor relation of public intervention, he continues. It does not fix the underlying problem. »

For the moment, two paths have been preferred. Central banks, in particular the Fed in the United States, are preparing people’s minds for a rise in key rates. States, particularly in Western Europe, have chosen to support the purchasing power of households with direct aid, following the example of France, which sends an inflation check of €100 to 38 million French people.

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