Corvinus Research: Long-Term Effects of the Hungarian Fuel Price Cap Were Negative

Corvinus researchers Zombor Berezvai and Dániel Helfrich investigated whether the abolition of the Hungarian government-imposed fuel price cap in December 2022 led to an increase in the price of 95-octane gasoline. Their findings confirm that it did: in the ten months following the removal of the price cap, actual gasoline prices were on average 12% higher than the artificially projected prices estimated using a synthetic control method. The worst month was January 2023, when the price premium peaked at 16%. Between February and September, the gap gradually narrowed, but even then, prices remained more than 11% higher than expected. 

According to the study, several factors may have contributed to this price increase. One possible cause is market distortion, specifically changes in market structure, including the decline in the market share of independent gas stations and a decrease in the number of fuel retailers. 

Due to the nature of the event, we could only conduct a short-term analysis, so it is uncertain whether the price premium will fade over time. Some indicators suggest that the price increase could persist, but further research is needed,

 said Zombor Berezvai, Associate Professor at Corvinus University and one of the study’s authors. 

The researchers emphasize that fuel is a fundamental economic factor, and introducing price caps can lead to fuel shortages, potentially weakening economic performance. Additionally, once price regulations are lifted, rising fuel prices may contribute to inflation. The aim of this study is to highlight the potential unintended negative consequences of price caps. 

The Hungarian government imposed a retail fuel price cap between November 2021 and December 2022. During this period, the average gasoline price was 21.5% lower than the estimated competitive market price without the cap. 

The findings of the study were published in Energy Strategy Reviews.