Are you sure?

Fuel price shocks

Hungarian fuel prices have surged to new records in early 2011, a combination of high oil prices, a strong dollar and previous tax hikes. Unfortunately, no immediate relief is expected on any of these fronts, meaning that motorists may have to face ever-higher prices in the months ahead.

The average price of gasoline briefly topped HUF 368 (€1.35) per liter in mid-January, up 23% since end-2009 and an all-time high, before retreating to HUF 361 by mid-February thanks to a weaker dollar. The average price of diesel is now nearing HUF 362, up 26% since end-2009 and likewise a new record.

Record prices reflect a perfect storm of rising global oil prices and a strengthening US dollar (in which oil products are priced). Oil prices approached USD 100 per barrel in the first weeks of 2011, up from USD 75 toward the end of 2009. Meanwhile, the USD/HUF exchange rate climbed from around 185 in late 2009 to more than 200 early this year. Expect these figures to rise further: oil cartel OPEC has said it won't lift production caps unless oil prices reach USD 110, while eurozone debt problems will likely keep the dollar relatively strong.

Prices were also bumped up by an increase in excise taxes in January 2010. As these taxes make up almost one-third of retail fuel prices, cutting them could provide some relief. However, the government – which called for excise tax cuts while in opposition but is now struggling to keep budget deficits in check – said it plans no reductions.

Record high prices are already showing up in lower fuel consumption. Gasoline sales in Hungary fell by 13% in 2010 to levels not seen since 1993. Meanwhile, diesel sales fell a relatively modest 6% last year. The latter trend may be reversed this year, thanks to a HUF 6 per liter excise tax rebate granted to Hungarian shipping companies to prevent them from buying most of their fuel abroad.

However, in a sense these price records are not records at all. In real terms – that is, in comparison with prices across the general economy or with average wages – fuel prices in Hungary are still around one-third below their "real" all-time high in 2000. (Balázs Szládek)