Hungarian inflation shaves off billions of household savings

The majority of household savings are in cash, due to high inflation we are experiencing a very serious loss of wealth, Hungarian households are losing several thousand billion forints due to inflation. As the annual inflation rate hovered just above 20% in June, the toll of skyrocketing consumer prices is adding up for Hungarians.

Hungary recorded the steepest annual inflation rate in June among all European Union member states. Consumer prices were 20.1% higher than a year earlier, driven primarily by soaring food prices and sky-high electricity, gas, and fuel costs. The fact that Hungarian households are feeling the pinch is evidenced by the continuous decline in retail sales figures, as the population cuts back on spending. A recent poll commissioned by Euronews showed that 41% were not taking a holiday this year on account of rising costs.
After adjusting for inflation, real wages have been on decline for more than six months in a row. Going forward, real earnings growth is expected to flip back to positive territory at the end of the third quarter in line with a retreat in inflation.
In addition to the considerable jump in living costs, in inflation is taking another painful toll: household savings are recording alarming losses in their value.

Cash is not king
By the end of 2022, the total value of savings managed in the private banking and affluent segments (customers with savings of over HUF 30 million) amounted to around HUF 8,600 billion, according to estimates by Blochamps Capital. Despite an unprecedented rise in savings in the top echelons of society, the picture is rather mixed. While those with a considerable amount of money see their savings expand rather rapidly, the other end of the spectrum faces different challenges altogether. In the current inflationary environment, the less wealth someone has, the more they are exposed to the risk of impoverishment - at least in Hungary. To make matters worse, a large percentage of the savings of the less affluent is kept in vulnerable assets in the current inflationary environment – cash, deposits, current accounts – meaning these assets are constantly losing their value. Financial experts warn that the vast majority of Hungarian households are defenseless against inflation not only through their consumption, but also through the classic financial instruments that they keep their savings in.

Immense loss
In a European comparison, the amount of cash held by the Hungarian population is extremely high; Hungarians keep much more cash in their wallets than the amount needed for their daily shopping. In 2022-23, the aggregate inflation will be over 30%, resulting in an immense loss of wealth for households, which in turn has a negative impact on the economy. According to some estimates, Hungarian households are losing around HUF 3,000 billion every year because their money is not invested. This is more than 4% of the Hungarian GDP.
And there are more worrying aspects. Even though central bank data show that Hungarians have a huge stock of gross savings, the net savings of the population as a whole is sobering, since households are deeply indebted.
Even though inflation is widely expected to abate in the second half of the year, the damage for many Hungarians is already done. Finance Minister Mihály Varga told Reuters this week that annual inflation will slow to 7-8% by December from 20.1% in June, helping the economy rebound. The question remains how long it will take for Hungarian to recoup the losses suffered in the past couple of years.