A price panic for Christmas?

State officials assure that there will be no price fever in Ukraine before the New Year. Mykhailo Rusynsky, the deputy minister of economy, voiced this opinion at the end of last week. “The market is full. In my opinion, if someone raises prices without reason, no one will buy their goods. There are enough resources to keep prices stable,” Rusynsky explained while summarizing the results of the conference call on the price situation.

To protect entrepreneurs from the temptation of ungrounded price increases, the Ministry of Economic Development and Trade elaborated a number of “stimulating-educating” measures. In particular, they plan to conduct explanatory sessions for both suppliers and consumers about the absence of preconditions for price increases. In addition, organizational measures will be taken to ensure manufacturer’s direct access to consumers. During the conference call, the ministry’s officials also suggested that local governmental bodies should stimulate transport and lower rents as ways of keeping prices stable. In addition, fairs organized by local government bodies will be held before the New Year and Christmas holidays in all Ukraine. There, as the Ministry of Economy assured, Ukrainians will be able to buy things for holidays for more accessible and “grounded” prices. “These are standard organizational measures which promote price stabilization,” assures Rusynsky. “Therefore we plan to continue this practice after the New Year and Christmas holidays.”

Those who yield to the temptation and add an “ungrounded hryvnia” to the price of their goods will be “educated” by fines, says the head of the State Inspection for Price Control Oleksandr Savytsky. “The amount of the fine, according to the acting legislative norms, constitutes 200 percent of the sum of the ungrounded receipts. The person who allowed this price violation is levied an administrative fine: from 5 to 10 tax-exempt minimums [according to the acting legislation, one tax-exempt minimum constitutes 17 hryvnias – Ed.],” explains Savytsky.

However, according to the statistics, fines do not have much of an effect on Ukrainians. “For the last three months we held about 3,000 reviews of price formation on the food market. In 85 percent of cases a violation was detected,” says the head of the State Inspection for Price Control. In his opinion, entrepreneurs undertake a risk because they still do not have an understanding of the inevitability of punishment for such actions. Therefore, everyone violates the price formation process: for buckwheat, sugar, meat, and milk,” points out Rusynsky.

Thus, owing to the violators the budget got 44.7 million hryvnias in the last three months. A total of 901 officials, who were tempted by profit maximization via price increases, added 96.7 thousand hryvnias to the budget.

However, the ministry prefers market mechanisms of price formation to administrative ones. “Strict price regulation is not the most efficient way to keep prices stable,” believes Rusynsky. According to the official, supply is still the key factor. Therefore, in his opinion, the course to stimulating agricultural manufacturers is efficient. “Analyzing the draft budget for 2011, we see that a considerable sum for the development of agrarian production is allotted,” stresses Rusynsky. “This includes interest rate compensation on credits used to purchase agricultural equipment, building livestock farms, etc. By stimulating production we increase supply on the market, thus ensuring price stability.”

So, the ministry has an optimistic prognosis for prices in 2011: food will not become more expensive because there are no reasons for that. Ukraine produced enough grains, potatoes, sunflower and hens to subsist, officials say. The only segments that may experience some problems are buckwheat, dairy products, beef, and sugar.

Officials from the ministry cannot say how much more expensive the “risk” food groups can become. They say that they are waiting for the results of a study. In addition, one should be very cautious with predictions, advises Rusynsky. “Our estimates for September, which was to be deflationary, showed that the price surge that occurred was mainly due to the fever provoked by ‘expert’ evaluations and predictions published in mass media,” Savytsky supports his colleague. However, according to him, there were some objective reasons too, but the chain reaction fueled by journalists and pseudo-experts intensified the ungrounded inflation.

Therefore, representatives of the Ministry of Economic Development ask journalists not to add fuel to the fire and not to publish experts’ prognoses regarding the price increase. “It’s easy to say that prices will increase by 20 percent. Let them defend their prognoses by showing their methodology,” advises Rusynsky.

However, the disliked experts have other arguments this time. For example, the director of the Ukrainian Club of Agrarian Business Volodymyr Lapa in his commentary to The Day pointed out: there are reasons for the major food groups to become more expensive. Two considerable factors can affect this. “First, there are price violations and syndicate plots that one can observe on the markets for eggs, sugar, etc. Second, the financial-monetary policy of the government doubled the amount of budget expenditures released on the consumer market. This increased food demand. Before the New Year the money supply increase will become even more considerable, since debts, additional payments, and bonuses are paid,” says the expert. In his opinion, sellers will surely make use of the fever before the holidays, while the Ukrainian consumers do not possess any legal tools to protect their wallets from price violations.