The government temporarily curbed inflation by administrative measures

On May 8^th, Statistics Committee published April 2013 inflation data. According to the published data, the inflation rate in April 2013 was 0.5%.

The reduced inflation in Belarus to 0.5% in April 2013 is the result of the administrative restriction on price growth for services and the most important goods in the consumer basket. The effectiveness of these measures can only be achieved in the short-term. In the medium to long term, the government will be forced to reduce the stiffness of measures, restricting price growth in order to improve the financial conditions at enterprises.

Consumer prices rose by 0.5%, which is the minimum value of the monthly inflation rate since July 2010. Prices for tobacco and alcohol increased by 0.4% and 0.6%, respectively, prices for housing services were frozen, and meat and processed meat goods prices dropped. The prices of the abovementioned product groups remain under the direct governmental control. The inflation was not curbed completely only due to the seasonal rise in prices on vegetables, if not that, inflation could reach record low for the last few years.

These results were achieved thanks to the direct administrative action by the government. The rise in transport tariffs was adjourned until later, the Ministry of Economy received a draft decision on utilities’ costs increase, but it is unclear when the decision will be adopted and in what scope. In the short-term, prices might be frozen in order to reduce the discount rate. However, these measures are not feasible in the long term and are designed to address only specific local problems. In the medium-term such solutions are ineffective.

Curbed inflation is a benefit for the consumers. However, manufacturers of products, against the background of growing wages and the inability to quickly reduce costs, by having their prices restricted face with deteriorated economic performances and are incapable of allocating additional resources for modernization. Foreign economic situation is deteriorating for a number of manufacturers, they are forced to lower their prices in foreign markets, which previously compensated by the possibility to raise prices in the domestic market. Today this mechanism is no longer available and they suffer losses and attempt use administrative resources in order to raise prices.

Thus, even though the government has managed to stabilize prices, it only postponed their further growth for better times. A local task to control inflation is completed, the discount rate is reduced, but the deteriorating situation at enterprises will soon raise the issue of ‘loosing’ price regulations.