Economist: Lukashenko Has Created Another Problem On A Flat Spot

• 19.06.2025, 9:50

Why is inflation accelerating in Belarus?

Officials continue to regulate the prices of many goods, although they have introduced some relaxation of this control. Meanwhile, inflation is accelerating - in May it accelerated to 7.1% per annum. Why is this happening and will the authorities return to a tighter management of the situation in order to fulfill the plans set for this year? This is what "Zerkalo" asked Doctor of Economics Lv Lvovsky.

Why is inflation accelerating

Price regulation continues to be in effect in Belarus, but in April the authorities introduced some changes, loosening the bridle for the cost of some products. As a result, annual inflation accelerated to 7.1% in May.

Prices inevitably rise even if they are restrained, explains economist Lev Lvovsky.

- If prices were not raised at all, the problems we have seen with vegetables would have started much earlier and not only with them, but with all products in general. Now, as we see, inflation is accelerating, but this is still the lower limit of expectations (analysts estimate the prospects of price growth at the end of the year at the level of 7-9%. - Editor's note)," the economist points out. - But we should say at once that we are not saying that hyperinflation will start now. The system is still tightly controlled, so it's unlikely to become double-digit.

At the same time, the analyst continues, in May the most active growth was just food prices, including the products, the cost of which officials allowed to raise in order to offset the emerging deficit. If the authorities had not done so, Belarusians would still be experiencing shortages of potatoes, onions and some other products.

In addition, the cost of goods and services, which are not restrained by the sensational 713th decree, is increasing. This is largely due to the overheating of the economy.

- In particular, the overheating is expressed in the fact that we have a very rapid growth of wages. If we evaluate relative to 2021, the economy has grown by only 4%, but real wages - that is, adjusted for inflation - have increased by 35%.

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This is overheating, when the demand for goods and services significantly exceeds the economy's ability to produce them, the expert continues. And since people have more money, they start spending it, i.e. consumption grows. This, in turn, accelerates price growth. In addition, part of the demand has gone to imports, which is reflected in the growth of the trade deficit.

At the same time, in recent months, people have begun to spend more on services, especially those where prices are not regulated by the state. This has led to a rapid rise in prices in this segment.

It also affects the fact that in Belarus there are critically few options for saving and investing. Therefore, many people invest in real estate, which again affects its value.

- In Russia, the government recognized overheating, and the Central Bank raised interest rates so that this extra money went to deposits in banks. But we don't.

Reminder, in June this year, for the first time in a long time, the Russian regulator lowered the key rate, to which interest on loans and deposits is tied.

Does it make sense to keep the 713th decree in such conditions?

If prices are still accelerating growth, the question arises whether it is not worth abandoning state regulation of them altogether. The economist believes that there was no sense in it before:

- In economic terms, this regulation is only harmful. That is, there was never any point in keeping it. It creates another potential point of tension in the economy on the spot. But in terms of political - especially given the fact that Alexander Lukashenko likes it - the sense is preserved.

Whether to wait for a new tightening of the screws

The authorities have set the inflation target of up to 5% for 2025. In fact, it already exceeds it. Meanwhile, the government reports that it has approved another program of actions to stabilize prices, while the previous ones "were effective"

Will the authorities tighten the screws in order to report on the implemented plans at the end of the year? Lev Lvovsky answers:

- This is a purely political question. Is it possible to reduce inflation to 5%? Yes, it is possible. But by bending the economy over the knee with the corresponding consequences. We have all seen the consequences of price controls. This is when retailers are the leaders in bankruptcies, when agrarians have serious problems. When, on the one hand, our economy is growing, but on the other hand, companies' profits are falling rather than increasing. These are all symptoms, including the price control system.

The problem, according to the economist, could be solved by increasing production. But this is not possible due to a shortage of personnel.

- Plans to import Pakistanis also appear to have been put on pause for the time being. If we just put pressure [on prices], we will have a situation like with potatoes, cabbage, onions and carrots, but with a much wider range of goods. Therefore, I hope that they will not keep up with these plans, but will simply forget about them and say that they managed to keep inflation at a single digit - it's already good," says the economist.

According to his estimates, we can expect that by the end of the year, prices will accelerate to 7-9% on average.