On Tuesday, the Government of Serbia adopted a Regulation that limits the price growth of five products: sugar, flour (type 400), sunflower oil, pork (thigh) and long-term milk with 2,8 percent fat. This was done to "protect the standard of living of the citizens", since "the largest part of the costs related to the items included in this decision" when buying food, said Minister of Trade Tatjana Matić.
On the website of the Ministry of Trade, it is written that this Regulation is "based on announcements of new increases in the prices of basic foodstuffs, as well as raw materials, some of which are at their ten-year highs".
Although the Regulation targets the poorest, whose share of food in the consumer basket is much higher than those with average and high earnings, it is quite possible that the price freeze will actually lead to a shortage of these products, despite the fact that the Regulation also prescribes penalties for reducing their production.
Because, if I have to sell goods at the prescribed price, and all other prices rise inexorably (we have reached 6,6 percent year-on-year inflation), then such a job is not worthwhile for me, because I will lose money on it.
This further means that I will try in every way to enforce the new regulation, because, if I fail, I will be damaged in the end, and Minister Matić has already announced that the validity of the Regulation could be extended even after the expiration of the stipulated 60 days.
It doesn't help that the state has been raising wages in the public sector faster than GDP growth for years, and even less for two years share (borrowed) money and who needs it and who doesn't need it.
At the beginning of 2022, pensioners will receive another 20.000 dinars each, which will further boost demand, and thus prices. Because, although inflation in Serbia is mostly imported, it is still above the level of inflation in the EU.
However, no matter how much central banks try to keep inflation low and stable, perhaps the worst thing about this situation is its unpredictability. Thus, the National Bank of Serbia estimated in August that inflation would not exceed 4,5 percent, only to announce in less than two months that, in fact, inflation would not go down. under 4,5 percent for another half year.
When you don't know what tomorrow's prices will bring, people generally get upset. And what can we say about the people of Serbia, who are forever etched with the ravages of hyperinflation in the 1990s?
This is precisely the additional problem (specific for Serbia) with this decision of the government - the associations that follow the expression "prices are freezing due to high inflation" are not at all pleasant and range from vouchers for basic products, to even-odd driving systems due to insufficient gasoline, up to bread stamps, shortage of everything and empty shelves in stores.
Of course, this time there will be no hyperinflation, but the catch is that the inflationary expectations of market participants push inflation. The local practice has taught people to keep their eyes open when they hear "freezing prices": their first impulse is to stock up on what they can, because it will probably not be available later, or it will become more expensive. And with that, then, we accelerate the vicious circle.
