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September 26 – October 2, 2011

The government is the main driver of the inflation

The situation has not changed
The government is the main driver of the inflation

Devaluation and persistent issue of money continue unwinding the inflationary spiral. Food prices are the main drivers now. Rising prices and costs against the backdrop of an undervalued national currency could put Belarusian producers out of business.

On 20 September the selling prices for bread, milk and meat were increased again in Belarus. The Ministry of Economy Decree No 153 of 19 September 2011 provides for 10% increase of the selling prices for bread and bakery products, milk and yogurt, sour cream, cottage cheese and 20% for beef and pork.

Also cigarettes prices have been increased up to 50%.

Agriculture Ministry of Belarus increased the minimum prices for agricultural products (farming), purchased for state needs by 55-67%. In particular, the purchasing prices for milk have been increased by 55%, for pork by 62% of cattle by 67%.

Comment

Devaluation and persistent issue of money continue unwinding the inflationary spiral. Food products are under major attack now. The Economy Ministry is consistently trying to raise the prices of final products to align the price disparity with the neighbors in order for meat and dairy plants to gain minimal profits (regardless of the recent price increases plants remain unprofitable), via reimbursing the rising costs to producers.

Agriculture Ministry of Belarus increased the minimum prices for agricultural products (farming), purchased for state needs by 55-67%. In particular, the purchasing prices for milk have been increased by 55%, for pork by 62% of cattle by 67%.

However, the Ministry of Agriculture also increases the purchase price to offset the increased costs to their agricultural producers. In a while, the Ministry of Economy will need to increase the final prices for basic foodstuffs again. The rise in prices and costs against the backdrop of an undervalued currency could put Belarusian producers out of business and the food industry could become an importer. While imports from the EU countries could be countered by non-tariff measures, it would not be feasible with regard to imports from Russia. Moreover, rising prices for basic foods will cause an immediate demand to raise wages and pensions, fueling inflation.

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