Real incomes lag behind rising prices
October 17 marked the International Day of Combating Poverty. Ella Libanova, an economics Ph.D. and department head in the National Academy of Sciences Center to Study the Productive Forces, told The Day that poverty is an “illegal category and officially we still do not acknowledge its existence; we only say shamefacedly that we have low- income categories.” In fact, President Kuchma admitted to poverty being widespread in Ukraine in a recent interview with the German newspaper, Frankfurter Rundschau. He stated that most people in Ukraine live worse than they did under the Soviets. In other words, one can assume that the ice has been broken and that the problem will be broached, although no one knows for sure in Ukraine who is officially considered needy. “From a purely academic standpoint, relying on statistics, we are supposed to refer to this category people with personal incomes lower than 75% of the country’s average income,” says Ms. Libanova, “and those below 60% are considered simply beggars. Scholars say the former category consists of families where per capita income does not exceed 126 hryvnias and the latter with 101 hryvnias.” Such an estimate points to 27.8% low-income residents and 14.2% paupers. Incidentally, expert findings show that the Soviet Union had 10% needy citizens.
Interestingly, the poorer people living in Ukraine get, the greater is their assistance to the government in its Herculean effort to get this country out of the crisis — and out of poverty, of course! In this case, the devaluation of wages and salaries, along with people’s savings, implies subsidizing the government. Well, what else can we expect from such an unpleasant phenomenon as inflation? When Mr. Yushchenko was still running the National Bank he made his name with the electorate by his uncompromising struggle with that same inflation, employing a rigid monetarist policy. Now times have changed, and inflation is turning low-income citizens into beggars, and we are no longer supposed to regard inflation as our number one enemy. The results of the first half of the year point to Ukraine’s ignominiously low position on a list of CIS countries in terms of inflation. Economists stress that the nation’s living standards are on a markedly downward curve. Back in 1999, individual incomes showed a 13.6% increment compared to the previous year. Over the initial seven months of this year (compared to the same period in 1999), it is a lamentable 2.8%, with the real wage index being 97.2% (against 103.4% in 1999).
In my neighborhood grocery store, I discovered that sausages were still sold by the kilo, with prices set accordingly, and that there were goods available showing stunning costs that looked more or less normal with per 100 gram labels. I asked a salesgirl what it was all about and she said, “It’s to keep people from getting scared.”
It appears that though the Cabinet is trying to implement a similar strategy, prescribing sugar pills for the man in the street in the form of carefully edited mollifying statistics. For example, Cabinet inflation statistics this September showed 2.6%, considering that it has actually been 21.6% since the start of the year. Surprising? Not really. In Ukraine, August is usually the richest month on the local market: fodder, vitamin-rich produce, meaning prices should be the lowest. Alas. At that same grocery I saw Ukraine’s famous staple, fatback, much thinner than usual, priced higher than beef and almost as much as pork. And the same was true of all those small makeshift, unauthorized street markets traditionally hounded by the militia and municipal sanitation authorities. “The price is up; I don’t know why,” I was told by a sturdy peasant woman as she cut me off a slice to taste.
The common folk passed judgment on the sudden inexplicable fatback price jump in their usual pragmatic manner: fatback is a durable product, you can have enough to last you the winter; it’s not like sausage or butter, which you cannot buy enough of, not on what you are paid in this country. Fatback can be stored for God knows how long, using rock salt as the traditional time-tested preservative. The price rise means that we are in for hard times. Ukrainians traditionally stock up for a rainy day, and just as traditionally they do not believe everything they hear from the state. The state is well aware that such a priority fatback price hike could well be regarded as a national disaster. Indeed, fatback is eaten in Ukraine not with chocolate bars but with black bread. A woman visiting a “cheap” street market with her school-aged daughter, wanting to buy some fatback, left empty- handed. She told one of the vendors, “I know that the people selling things here are good, but their prices are bad.” There is no mention of fatback in the State Statistics Committee’s [Derzhkomstat’s] express bulletin, lost somewhere among statistics relating to animal fat, meat, poultry, fruit, and butter items, showing prices up another 8- 6.75%.
Oleksiy Plotnykov, economics Ph.D., believes that hidden inflation has always existed in Ukraine, especially during Soviet times. Now, he says, there is no reason to trust official statistics, considering the commodity-service criteria adopted by Derzhkomstat if one wants to have a clear picture of consumer price growth, let alone the inflation rate affecting industrial goods and services. “My own statistics say inflation is actually higher than what we can see in all those official reports,” he says, “and that the government is concealing the actual scope, trying to capitalize on the whole thing politically. I have always marveled at the government’s claims that we just have to wait a little and everything will be fine.” Prof. Plotnykov also maintains that the population actually needs no such official assurance, because the people are only too well aware of what is actually happening; inflation tells on their wallets.
People’s Deputy Viktor Suslov told The Day that the whole situation was additional proof of the old adage that seeing is believing. As a result, people have developed double vision: mollifying official inflation statistics and altogether different expressions after visiting stores and street markets. He thinks that this year’s inflation rate is higher than last year’s, a fact that should be positively regarded, among other things, from the standpoint of the nation’s industrial potential and macroeconomic indices, since all those “signs of economic growth are actually the result of currency devaluation and rising inflation.” He also believes that something must be done to protect the population from this inflation, that it should be done by carrying out certain laws, and that the Cabinet does not do so. It paid back wages using devalued money and the law providing for the indexation of the money incomes of the population is being ignored.
In fact, far from all domestic experts feel as pessimistic. Oleksandr Narbut, deputy chairman of the Taxpayers’ Association of Ukraine, shared his views on inflation toward the end of the current and next year with The Day, saying oil costs are likely to lower somewhat this spring, and that this will affect the situation on all the other markets, food included. Mr. Narbut believes that the monetary-stock-commodity- turnover ratio is the only real inflation index, meaning that the inflation curve will decline after Ukraine develops its land market and adds to the commodity stock in terms of plots of land.
