Links in the chain

Manufacturers wish to sell at high price while customers search for cheaper options, resulting in compromise

By Alexander Nikonov

Asking why prices rise is rather like asking ‘who’s guilty?’ It’s no secret that inflation in Belarus is the result of internal and external factors. However, our economists tend to blame the latter. Belarus cannot independently set rules for domestic pricing, since imported ingredients and components affect pricing.

Food prices are rising worldwide and economists in the West and the East believe they’ll continue growing. Growing tariffs and customs fees naturally influence prices. Meanwhile, the fires of 2010 burnt harvests and drought, excessive rain and flooding in countries known as major grain suppliers led to reduced deliveries. Over 50 states have imposed restrictions on the export of their products, resulting in a deficiency and rising prices. Over the past year, prices for wheat alone have doubled.

Adding to the influence of external factors is the devaluation of the American Dollar against the Euro, since most prices on the global market are fixed in the American currency. Its weakening influences the pace of inflation on global markets. “Since the mid-1980s, the Dollar has halved in value, as official inflation in the USA indicates. Meanwhile, until the mid 2000s, global Dollar-fixed prices for food, raw materials and energy lagged behind the devaluation of the American currency,” explains the National Academy of Sciences of Belarus. The correction of global prices began before the crisis, with prices for raw materials, energy and food growing significantly. However, food prices lagged behind those for fuel and potash fertilisers. Accordingly, the accumulated difference between prices for food and resources (included among farmers’ costs) is now obvious. “This is influencing costs, supplemented by demand: in particular, purchasing power is growing in China and other South-East Asian states,” notes the NAS.

Those who spend the major part of their income on food are worst affected. Fortunately, the number of such people is falling in Belarus. On average, Belarusians spend just one third of their income on food. Rising salaries are compensating for rising inflation. Last year, nominal average monthly salaries in the Republic rose by a record amount; up 46 percent last December (against December 2009) to reach $530. Food prices rose by a mere 14 percent.

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