By Anatoly Rudnevsky
“In March, inflation in Belarus reached 1.3-1.4 percent — according to preliminary estimations,” explains the Economy Minister, Nikolai Snopkov. The figure is less than 4 percent and more registered from January-February. Speculation led to raised demand for some products, but is now receding, with the situation stabilising. Prices in Belarus have mostly grown due to increasing raw material prices globally. Since early 2011, oil has risen in price by 8 percent and, since June 2010, by almost 60 percent.
“There exist the inflation of supply and the inflation of demand,” stresses Felix Chernyavsky, the Head of the Association of Belarusian Banks’ Analytical Centre, offering a different outlook. In case of the former, manufacturers are using more expensive raw materials and components, resulting in higher prices for end products. The latter is related to the population’s disposable income which also plays its part; if it grows faster than labour productivity, then ‘excess’ money appears on the market, resulting in raised demand. Unsurprisingly, sellers then increase prices, causing inflation.
If life was always predictable, demand would match supply, with no inflation at all. However, only textbooks on economics describe such an ideal situation. To reduce inflation, the European Central Bank plans to raise interest rates on loans, while rewarding saving more generously. This strategy is similar to that of the Belarusian National Bank, which recently increased its refinancing rate to 12 percent per annum.
Belarus must import certain commodities, including energy and raw materials. Accordingly, global trends influence the ‘purses’ of our citizens. “Of course, the Belarusian state could restrain price growth using internal reserves,” notes the Deputy Chairman of the Belarusian Scientific-Industrial Association, Georgy Grits. However, this can create additional obstacles. Too low prices (in comparison to our neighbours) can provoke intensive exports to bordering states. This is why it’s important to act reasonably. Excessive regulation of prices also holds back the development of entrepreneurship and the creation of new jobs.
Mr. Chernyavsky believes that we could minimise influence on internal prices by raising the efficiency of domestic production facilities. With this in mind, the Government has focused on investments and innovations.
Additionally, import substitution is vital. The share of imported products must be reduced on the domestic market and this will take more than a decision to reject imports of foreign clothes, electronic goods and food. Our domestic manufacturers need to produce goods which our citizens are eager to buy, paying in Belarusian Roubles.
Despite the Soviet tradition of appearing poorer than it truly is, the population has money to spend, as proven by the recent purchasing of passenger cars. “The Economy Ministry feels embarrassed that people are hoarding money at home rather than placing it with banks,” notes Mr. Snopkov. According to some estimations, the average Belarusian saves just 5 percent of their disposable income. This holds back the country from development while inspiring inflation. The Government plans to tackle this problem.