Inflation and prices

On 28 May the retail price of vodka increased by 10%, sugar by 40%. As of 1st June the price of tobacco and alcohol will be increased by 30%.

On 24 May the Belneftekhim Concern increased the retail prices of petroleum products by an average of 20%. The cost of petrol A-95 was set to approx. USD 0.9. It is anticipated that in the near future petroleum prices will rise again.

On 25 May international railway fares were raised. On 26 May the margins of selling prices of beef and pork were increased.

The Ministry of Economy has acknowledged that during the past 5 months the inflation could exceed 15%. Following the devaluation, the Ministry of Economy recalculated the annual inflation at 55-75% however following discussions in the government the forecast was lowered to 33%.

Comment

The official devaluation resulted in even higher prices. The increase of pensions from 1 June (on average by 13.7%), and of salaries of public sector workers, drags the country deeper into a spiral of “wages – prices”.

The next step is raising fares on public transport, gas, electricity and heat, followed by a slight increase in wages in the public sector. All this will heat up the flywheel of inflation and become an additional factor of growing USD rates. At the same time, the country still lacks the political will to tighten the monetary and fiscal policy (freezing salaries, suspension of activities and bankruptcy of enterprises, etc.).

The government’s unwillingness to acknowledge the unpleasant data and the economic consequences speak of their “coward” attitude.

The government experts consider the possibility of a moratorium on the actual accession of Belarus to the single economic space on 1 July 2011 as one of the solutions to curb inflation. They explain that in the case of lifting of the restrictions on mutual trade with the Customs Union member countries locally produced goods, particularly goods of social significance with regulated prices, will be “washed out” from the Belarusian market by “dealers” and immigrants from the neighboring countries because of the sheer disparity of prices (also increased by the devaluation). Belarus will face a problem of shortages of essential products with all the potential social consequences. Another negative effect of lifting the restrictions on mutual trade with the CU countries is that it will expose Belarus to the flow of imports, which could have painful consequences for some Belarusian industries (light industry, food industry).

Therefore it is likely that Belarus introduces such moratorium however at the moment Russia has leverage to prevent it.