Hungarian Prime Minister Viktor Orban's food price controls took effect in Hungary on Monday as the country grapples with the highest inflation rate in the European Union.

Hungary has faced the EU's most severe inflation surge since Russia's 2022 invasion of Ukraine, with rising prices continuing to strain households. Official data released last week showed that food prices had increased by 7.1% over the past year.

Amid the inflation rebound and the potential for a sluggish recovery, Orban has introduced significant tax cuts for mothers and set a cap on retail price margins for 30 food items to help keep prices in check, Reuters reports.

“If the government sees that retail chains do not adhere to the regulation, we will extend it to all food categories! The government is also ready to relaunch regulated prices as a last resort,” according to the Economy Ministry.

Hungary's annual inflation reached 5.7% in January, the highest among EU member states, more than double the bloc's average of 2.8%, according to the latest Eurostat data.

During the previous major inflation spike, food prices rose to match the EU average in 2022-23, prompting the government to implement price controls once again, as revealed by a central bank survey.

The bank stated that the earlier price surge was partly driven by low productivity and high energy costs in the food industry, issues that continued even as inflation began to ease.

It also noted that the previous attempt to cap food prices had backfired, with companies raising prices on other products to compensate for the losses.

Furthermore, Hungarian retail group OKSZ predicts that the new measures could reduce food inflation by 1-2 percentage points, provided there are no further price hikes in the supply chain.

Whereas ING economist Peter Virovacz forecasts that inflation could peak at 6.5% in October, with average inflation reaching 5.6%. This would likely mean Hungary would have the highest inflation in the EU for the second time in three years.

The stakes have been raised for Orban, according to Virovacz. He drew a comparison to last year’s US election, where Donald Trump regained the White House amid voter frustration over ongoing inflation.

Analysts at Wood & Company noted that Hungary's inflation rebound could challenge the National Bank of Hungary's tolerance level under new Governor Mihaly Varga, as rising prices may erode the bank's positive rate buffer.

The inflation surge, partly fuelled by a weakening Forint, has led the bank to halt rate cuts, keeping the EU's joint-highest rate at 6.5%.