National Bank won’t keep promised inflation level by end of the year

Prices are growing twice quicker in the second half of the year, while they have already grown by 10% in the first half of the year.

The editorial office of charter97.org has been told about that by an economist, Leanid Zlotnikau, who comments on the today’s official inflation forecast: earlier the authorities promised 11%, but they had a second thought and announced a new level of 17.3%, which is even higher than the prediction of the World Bank (16%).

It believes that in the nearest future loss-making enterprises are going to put pressure on the government and ask for support, and then the National Bank might yield to the pressure and print more money, that is, to increase the level of prices growth, which has been exceeded, even more.

- The factual inflation is already very high: it is 10% in the first half of the year, and the price growth continues. Prices are usually growing quicker than in summer in the end of the year, in autumn and in the first month of winter. The lowest price index is usually in August and July. And later, in October, the prices start growing faster – it’s an influence of season factors. Now another rise of prices is taking place: thus, since September 1 utility rates have increased. As long as price rise continues, it is practical to prevent it, as bank should also have some guidemarks, as well as financial institutions, and the population should feel inflation and understand whether it is profitable for them to use bank deposits or not. So it is normal that prediction exists.

- Is it probable that the National Bank would be able to stick to it and not exceed the new limit of price rise? What is the main factor for that?

- Yes, new questions suggest themselves in this connection: for instance, whether the inflation level by the end of the year would be really 117% or 120%? It is not weather which could be predicted with some probability. It is an index which depends on the indicators of the National Bank. In case the bank throws in more money, there would be inflation, prices are to rise. In case it wouldn’t, inflation would be kept at 117%. It is an index which is manmade, it depends on people: on the Council of Ministers, on the National bank, on Lukashenka. I think that the National Bank and the authorities would not be able to preserve this level.

- At the moment it is known that the price rise in the first half of the year was 10%. You claim that prices grow faster in the second half of the year. How it is possible that there will be just 17% by the end of the year? It is not logical.

- It happened so that since May the National Bank started to pursue a tight credit and money policy, limited throwing in money into the economy. Naturally, they slowed down price rise a little, and the National Bank received some optimism kick, thinking they would be able to maintain the situation. But as soon as the credit and money policy is tightened, more expensive money and more expensive loans emerge, and inflation index became slower after the middle of summer, both due to the season and the actions of the National Bank, and it was hard for inefficient enterprises to pay salaries. We have very many inefficient enterprises, more than a half of them. They have either to stop or to sack workers. It is a painful process, no one wants to do so. The bankruptcy law, which could transform inefficient enterprises, hardly works in our country. Enterprises start to press the Council of Ministers, Lukashenka, to make loans cheaper, and ask them to support employment, manufacturing and so on. That is, a heavy pressure starts. And when the pressure is heavy, the government yields. They start to say that the real sector of the economy should be supported. Then the National Bank softens its policy. And it happens in a kind of waves: there was tightening in the end of spring, and now this pressure is to grow certainly. It is possible that the National Bank can give up and loosen its policy.

- Is there a difference in the speed of price rise between Minsk and regions?

- No one counts price indices, as it does not really make sense, indices are to be almost the same. One does not count inflation in a separate collective farm. An index all over the country is counted. Prices for some goods can grow, and fall for others. Something can go up in Minsk and go down in Brest, but it does not really matter, as finally it is all generalized, not as a price rise of certain goods, but by a price index, which considers the entire consumer goods basket, entire consumption of the country. The cost of the entire basket all over the country is compared.

- Considering by such a daring correction of its predictions, the National Bank indirectly admits that no loans have saved Belarus so far.

- There are many factors that determine the policy of the government. For instance, if great volumes of foreign currency are received by the economy (like loans or privatization gains), inflation could be kept within these limits. But what should be done when people are to receive salaries, and there is no money? Money printing press is ordered to start working, and it’s done out of despair. People are given money, or I’d rather say paper, as the quantity of goods remains the same. And prices grow. If there was external borrowing, it would really help to increase volume of consumption by several per cent without inflation. And in order to maintain the existing standard of living, salaries should be paid and increased. For instance, salaries for medicine workers have been increased recently. Pensions have grown a little. But when the GDP does not grow, that is, the volume of goods for end consumption, and people have more cash money, it is to end by inflation, price rise. The people, whose salaries have been increased more than the price growth, have won more. And others are to lose. It is like hogging the blanket with the help of inflation. The state is always moving this “blanket”: one people get money, and others go bust. And all that results in price rise.