Inflation in Serbia hits the poor hardest, says professor of Economics Mikhail Arandarenko

A rise in prices of basic foodstuffs has been noticed by everyone in recent months, but inflation is hardest on the poor, who spend most of their income on food.

Although citizens can simply inspect their wallets and conclude that inflation has “eaten” their income, statistics is there to confirm that. According to the official data for the previous year, from December 2020 to December 2021, inflation in Serbia amounted to 7.9%, and food prices increased the most, along with fuel.

The real impact of rising prices on the population is better understood when we look at the share of consumer expenditure spent on food and beverages. Namely, on average, 31.4% of monthly income in Serbia is spent on food and non-alcoholic beverages. When alcoholic beverages and tobacco are added, it amounts to almost 40% of average income. For the sake of comparison, in the Eurozone, food and beverages represent no more than 21.7% of overall expenditures.

Mikhail Arandarenko, professor at the Faculty of Economics at the University of Belgrade, says that the rise of prices in Serbia is primarily a result of global trends.

“Global inflation is a consequence of several factors – long-term monetary policy which maintained low interest rates and included pump priming as a method of stimulating economic activity in the leading economies; rising costs brought about by disruptions in production and supply chains (especially rising energy prices, which are also a result of geopolitical instability); and increased ‘compensatory’ demand that the population expressed after the pandemic-induced forced abstinence from consumption. It’s tough to make predictions, but according to the behaviour of the central bank of the United States, Federal Reserve (FED), global inflation will probably last at least until the end of this year and will have to be suppressed by coordinated tightening of monetary and fiscal policy”, Arandarenko told Mašina.

He added that inflation affects the poorer more, “because they spend more of their income compared to the rich”.

“In addition, in the structure of their consumption, food has a larger share, and food prices have increased above average in relation to the general inflation rate. On the other hand, maintaining employment levels, raising the minimum wage, additional occasional universal benefits or benefits for lower-income age groups, as well as the temporary cap on basic food prices, contribute to keeping the real income of the poorer strata unchanged on average. However, inflation will eat away most of the expected rise in living standards this year”, Arandarenko concluded.

M.M.

Translation from Serbian: Iskra Krstić

This article was ORIGINALLY PUBLISHED in Serbian on Feb 1, 2022.

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