Why do foodstuff prices run ahead of inflation?


Economists explain that foodstuffs weigh only 40 percent of inflation which has grown up to 7 percent over the past ten months in Belarus. Last year, inflation did not exceed 6.6 percent. The difference is minimal. However, the growth of foodstuff prices is significantly ahead of the inflation growth.

Poultry prices have soared by 24 percent against 1.3 percent last year. Dairy products became as twice as much more expensive than last year. The price of vegetable oil has rocketed at 63.4 percent. Last year, it became even cheaper at 1 percent. At the same time, the difference in the inflation level between this year and last year is just 0.4 percent. Clearly, it is not proportional to the price growth.

The Ministry of Statistics told the European Radio for Belarus that when calculating the index of prices, they take into account 400 goods items used the most by the Belarusians or the so called “consumption basket”. According to Tatsyana Mikhalevich, the head of prices statistics department, a lot depends on the weight of a certain foodstuff in this basket.

“Every foodstuff that is part of the consumption basket has its weight. Totally, all these goods and services make up 100 percent. Depending on the share of each foodstuff in the basket, its influence on the result will correspond to this share,” Mikhalevich said.

Therefore, if some foodstuffs have grown very expensive but their weight in the consumption basket is little, then their influence on the inflation growth will be also insignificant. But according to the Ministry of Statistics, meat, dairy products, alcohol drinks, bread and vegetables have the biggest weight in the consumption basket. Utilities bills take the lead among the services category.

According to economist Aliaksandr Chubryk, the thing is that foodstuffs weigh only 40 percent of inflation.

“The foodstuffs prices, of course, have a weight in the consumption basket. But it is only around 40 percent. There are 60 percent of other goods that do not become expensive so fast”, he said.

According to Stanislau Bagdankevich, the former chairman of the National Bank of Belarus, an average Belarusian rarely grabs this consumption basket. Normally, he or she shops totally different things in stores.

“The inflation is declining, because more or less well-off people buy meat instead of bones. They also buy better quality suits. The calculation is based on the consumption basket which includes the goods controlled by the state in the first place,” Bagdankevich said.

Meanwhile, Economy Minister Mikalai Zaychanka has reassured Belarusians that the wage growth is ahead of the growth of prices. Economist Leanid Zlotnikau agrees with him. However, he notes that this happens only because Belarus borrows and lives in debt.

“This growth of cash in the hands of the population partially covers the cost of external borrowings. If Belarus continues to get more loans, the price growth will continue even more than this year”.

The more we get cash in our pocket, the more we will have to pay for a basket with foodstuffs.