Fair competition is the primary antidote to inflation.
Only three consumer prices have not grown in the previous 18 months, according to a graph on the main page of Rosstat's official website. According to surveys, citizens were unconcerned throughout these three months, and they perceive the pace of price rise to be significantly greater than Rosstat. They are all in agreement here. What can't be stated about why this is occurring, what to expect, and what to do is that nothing can be spoken. On this subject, people have differing viewpoints. I'm going to give myself permission to express myself.
Prices are now solely restricted by a seasonal factor: a new crop of vegetables and fruits. It is, however, relatively weak and has little impact on the overall consumer price index. Their growth factors have significantly enhanced.
I'll highlight two of the more important ones, in my opinion. The first is a large increase in producer pricing, which is mostly due to increasing manufacturing costs. Food producer prices grew by 15.2 percent in the first half of this year compared to the same period last year, while textile items increased by 11.2 percent and motor vehicles increased by 12.1 percent. This will eventually lead to a rise in retail pricing, albeit with some lag. It can be direct, as seen on shop price tags, or indirect, as when a well-known product on the market with unchanged packaging and price degrades in quality or quantity. This has a larger impact on items that cannot be substituted with something less expensive. That is, it has a greater impact on low-income customers.
The second element driving price increases is a large increase in consumer nominal income. However, they do not generate as much money from the sale of their own goods and services as they do from debt. In the first half of this year, Russians borrowed 2 trillion rubles in consumer loans, which is 1.5 times more than a year ago and 2.1 times more than five years ago. Such loans are obtained either to acquire something needed in anticipation of a price increase, or to cover current costs in order to maintain one's standard of living when one's present income is insufficient.
This money greatly raises consumer effective demand, which means that the same quantity of products and services may be sold for a higher price. After all, the price, like the division on the scale of the lever balance at which the arrow stops, determines the supply and demand equilibrium. Its rise or fall signals to market players that it is more lucrative to produce, sell, or purchase, and to investors that it is worthwhile to invest in.
When the price of anything rises, it becomes more lucrative to manufacture and sell it; as a result of the higher price, the product grows in size and the price for it falls. The price lowers - and the product's appeal to its makers and sellers decreases as a result, implying that the price will increase.
However, this is only true when the price fluctuates due to natural factors. If this occurs despite them, due to the authorities' desire, the monopoly, or a cartel agreement amongst competitors, the market process ceases to function, and the problem of a consumer goods scarcity is added to the problem of skewed pricing.
Prices grew steadily in post-Soviet Russia, at first extremely fast and later much more slowly. Consumers, on the other hand, only noticed this rise and thought it was unjust when it considerably outpaced their income growth. This has been happening in our nation for the last seven years, and the government chooses to blame residents' natural dissatisfaction on price increases, which the business assigns blame for, rather than on a drop in revenue, which it bears responsibility for.
The authorities, on the other hand, recognize that the price volatility would have a significant negative impact on consumers. “We remember what this leads to, back in the 1990s, in the late 1980s in the Soviet Union, to bare shelves...,” President Putin stated in his penultimate address to the Federal Assembly. The most important thing today, of course, is to guarantee that citizens' actual earnings increase, are restored, and continue to grow.
When the President mentioned the growth of real incomes, he clearly did not mean the expansion of consumer lending, which, against the backdrop of a significant drop in current income for a significant portion of the population, not only drives up prices, but also raises the risk of massive borrowers defaulting, endangering the banking system and thus societal financial stability. I believe that limiting consumer-borrowers' unsecured debt burden to no more than a third of their current income would not only decrease such dangers, but would also act as a deterrent to price rises.
The most important thing to remember is that the increase of the supply of goods and services is the primary source of consumer income growth. Fair competition is its driving force. The government is obligated to support it and ensure that no one uses cartel agreements to influence prices. This is a permanent task for the Federal Antimonopoly Service, and I'm not sure why the department wasn't ready to answer the president and the public right away about whether there was a cartel agreement between retail chains, and then announced the checks as if their collusion was obvious to her, and all that was left to do was fix it. Retail, it appears to me, is the most competitive link in the chain from fields and farms to the consumer's table. And it is only as a result of this that grocery prices in shops have risen by around 7.5 percent over the year, rather than 15 percent or more as in industrial manufacturers, and not by 20 percent as in industrial manufacturers.
In the case of retail chains, whose prices virtually never include payments to wholesalers, their proportion of overall food retail turnover, which has risen in the last ten years, was just 44 percent last year. At the same time, the greatest price rise occurs precisely where the network share is lowest. The North Caucasus is one of the federal regions, with a proportion of chains in food turnover of 9%, while the Republic of Dagestan is one of the federation's subjects, with a share of less than 1%.
The Federal Antimonopoly Service appears to recognize this, since it has already announced the drafting of a fundamentally different price-containment tool: a legislation banning retail chain markups. It is unclear if such a limitation would be suggested to apply only to chains or to all trade organizations, whether wholesalers will be affected, and whether it will apply to each commodities item, a collection of items, or an organization as a whole. Expect administrative limitations on manufacturers' added value - an equivalent of the trade margin - if their portion of the retail price is typically considerably larger than that of sellers.
I'm sure they should be expecting that, given the logic of price restriction by the government. When it was agreed to limit pricing and trading margins for critical and essential medications, pharmacy organizations were also required to keep their complete list in stock - otherwise, they would simply not acquire what was not lucrative to sell. However, in order to launch a range of medications that are required by the seller and are limited in terms of delivery price, one must be confident that someone would offer them at these rates.
The fact that the state did this in relation to the most essential drugs (their list represents less than 1% of all registered drugs) is, I believe, due to the state's large share of drug purchases - a third of them are funded by the budget, so there is a desire not to overpay - and the ability of the largest buyer to influence sellers and manufacturers. In the case of food items, the government has neither the motivation nor the power to influence.
Large trading companies will shift the losses into prices for other goods if the trade margin is limited to a few dozen or even a hundred specific items from the government's approved list of socially significant products. Small stores will find it much more challenging, since their selection will be many times or hundreds of times smaller. But the most important question is who would be responsible for ensuring that these items are continuously supplied if they become unprofitable for producers and importers?
This is something we'll have to force them to do. So common sense dictates: it's best not to start, because else we'll end up back where we started, having paid a high price for it - to the State Committee for Prices, Gossnab, State Planning Committee, and then to a large deficit and an uncompetitive economy.
The author Peter Shelishch is a Russian economist.