The government is fighting inflation by increasing prices.

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April 22, 2016 18:29

The National Statistics Committee reported 5.4% inflation in Q1 2013.

Devaluation is no longer behind the price increases. In Q1 2013 the main reason for the price growth was goods and services’ price regulation by the Economy Ministry. Quantitative plans for industries, widely practiced in the country, result in continuous price increases.

Consumer prices since March 2011 to March 2013 increased by 2.52 times. During the same period, national currency against currency basket depreciated by 2.75 times. At the same time, due to the spreading retail chains, particularly in the regions, and the increased competition in the food retail market, the prices should have had a downward trend. The number of products and services, which prices have not increased by the level of national currency depreciation, is negligible and declining.

Analysis of the price growth’s pace in Q1 2013 shows that prices grew faster for the goods and services, which are regulated by the Economy Ministry. This group includes tobacco, services of childcare facilities and public utilities. In 2012 public utilities tariffs and kindergarten services fees were not increasing as rapidly as other services’ costs due to their social importance. The government decided to hold back with increasing costs in this sphere, waiting for a favorable period, which may have been early 2013. Prices for alcohol and tobacco were increased due to Belarus’ commitment to harmonize excise duties on alcohol and tobacco with Russia, as well as for fiscal reasons. Alcohol is responsible for about 11% of the total retail turnover. Excise duty on alcohol and tobacco is one of the major sources of budget revenues, and when the economy is weak, it becomes one of the ways to compensate losses in other areas.

Another negative factor is the administrative management in the economy, which stimulates prices’ growth. In a market economy, when international economic situation deteriorates, an enterprise reduces dull goods production. But in a planned economy, the enterprise is forced to increase production for the sake of production plan implementation, illiquid products are sent to warehouses, costs increase, and output prices grow to compensate the increased costs. In addition the enterprise is restricted to carry out layoffs, therefore administrative wage growth results in inflated production costs and consequently in higher product’s final price.

Thus, the government becomes the main driver of the rising prices. If the government continues interfering in economic processes, competitiveness of Belarusian products may reduce not only in the international market, but also domestically.

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