Economist: The More Efforts To Slow Down Prices, The More They Rise

• 26.08.2022, 17:25

The efforts of the Belarusian government to stop inflation is a psychological maneuver.

According to the Ministry of Antimonopoly Regulation and Trade, prices in Belarus continued to rise in July, but overall inflation slowed down. The annual increase was 18.1%, but compared to the previous month, prices rose by only 0.5%. In many respects, Economic Newspaper writes, this slowdown was due to the seasonal decline in prices for fruits and vegetables.

At the same time, the newspaper notes, prices for many everyday products continue to steadily creep up: bread, milk, meat, as well as those goods that are not produced in Belarus or their domestic production is small: household chemicals, electrical goods, cars, etc.

How long will the "new harvest factor" last, how do Russian tourists affect prices, and what should Belarusians prepare for at the end of the year? Economist Leu Marholin answered these and other questions for Filing.

"As a rule, the seasonal decline in prices for vegetables and fruits lasts for August and September," the expert says, "in October, it is usually zero, and then their gradual rise in price begins and, accordingly, this factor is leveled and begins to contribute to inflation.

After all, it is one thing to bring cucumbers and tomatoes directly from the fields for sale, and another thing when they need to be stored, which entails additional costs and an increase in price. And the longer they are stored, the more expensive vegetables and fruits are: these are both storage costs and natural loss from time — you can’t get away from this.

However, even in the season, Belarusian apples are for some reason more expensive than Polish ones — according to the head of MART Aliaksei Bahdanau, this is because Poland has large subsidies for agriculture, while dumping is done in the EU. Leu Marholin, however, sees another simple explanation:

— Here, the main factor affecting the price is production efficiency. When it goes to private enterprises with good equipment, good varieties, low losses, then, of course, the cost of apples will be lower than in Belarus, where there is a lot of manual labor, not the best varieties, and the like.

— Experts say that one of the significant pro-inflationary factors is the weakening of the Belarusian ruble against the Russian one — over the year, the fall was more than a third (30.6%). What does this mean for us, given that Western markets are closing for Belarus, and the share of imports from Russia is growing more and more?

— It should be kept in mind that any devaluation is dangerous, first of all, for the importer and beneficial for the exporter.

And if we take into account that we exported in many respects to the European Union, but Russia for us was mainly a source of imports, in particular, energy resources — oil, gas, and that we pay, unlike in previous years, with the Russian ruble — it turns out that with every month we pay more and more for these energy resources. And they are needed everywhere — in fertilizers for agriculture, and in electricity, and in the transport industries. Therefore, it is indeed a pro-inflationary factor.

— How will the significantly increased flow of Russians who come to Belarus for recreation and shopping with Russian salaries (at a time when the real incomes of Belarusians are falling) affect prices?

— It should be borne in mind that the Russians are now also not fattening, as they say, and their salaries are also falling. They may be higher than ours, but lower than they were eight years ago and even last year.

The second point is that any economic activity, including tourism, is a plus for the country's economy, there are countries that live on tourism alone.

In my opinion, the number of tourists who come to us can hardly put a serious pressure on prices, for example, on food — they will not take tons of vegetables, fruits or meat products with them. But they can put pressure on the prices that interest them here.

In particular, if we are talking about health resorts, hotels — the prices for these services can rise, and they grow almost every year, because indeed many of our health resorts are occupied by Russians for the summer period.

But in general, if we compare the pros and cons, the expert notes, there are still more advantages from the influx of tourists for the country: "Every ruble, dollar, yen or yuan benefits the economy".

— The government continues to regulate prices manually to curb inflation — frankly speaking, with dubious success. Is it possible to predict what will happen to prices in Belarus by the end of the year?

There are, of course, many factors that affect inflation. But certain conclusions can be drawn already now (in fact, they could have been drawn several months ago).

First, all the efforts of the government to stop inflation are more of a psychological maneuver in order to calm the population. After all, economists have long known that the more efforts to slow down prices, the more they grow.

The only radical way is to ban price increases, but then products or goods simply disappear from the shelves, because no one will sell things, be it TV sets or milk, at a loss.

It is clear that prices are rising and will continue to rise, because there are no factors on the horizon that could have a significant impact on them.

— That is, we, in fact, have a choice between inflation and deficit?

— Yes, definitely. In addition, sanctions exist, and no one is going to cancel them yet — moreover, the most painful of them began to operate only in June, and we have not had time to really feel them yet.

The most qualified specialists have either left or continue to leave the country. And, unfortunately, there is no trigger that would lead to a rapid increase in production or a decrease in prices.