Rising consumer prices have become an important issue both in the world and in Slovakia. Although with the current single-digit growth, consumers of the 1970s would have laughed us out, it is good that we are talking about this topic out loud. Perhaps it will help us avoid much bigger problems.
For voters, it will not be the price of copper or chips that is the key issue, but the prices that directly affect us. Those are energy and food. We know about energy price rises and we expect them, but not everyone is aware of the scale of those rises.
But what about food? Food has been knocking rulers off their thrones for millennia. Their importance in our shopping basket has since fallen drastically, yet they are a litmus test of voter satisfaction.
It is perhaps needless to write that we can expect prices to rise, not fall. This is suggested by rising input prices (energy, transport), but also, for example, by nitrogen fertilizers, the price of which in the US has risen by 108% in a year to an all-time high. This is also indicated by the development of food itself in recent weeks. The FAO reports the highest world food prices since the summer of 2011.
There is nothing that can be done about it; rising prices are a reflection of events that have already happened or are under way. The important thing at this point will be for politicians to be able to sit on their hands. It is always the political measures to prevent them that cause far greater problems than rising prices.
The scariest are price regulations. They lead to deeper shortages because they stifle investment, cause capital flight and create losses all along the chain, from traders to grocers to farmers. Not to mention stimulating the grey and black market.
The second big bogeyman is trade restrictions. There is a mistaken idea among some that rising prices are a foreign problem and that if we had everything from domestic sources, it would not affect us. It is, of course, exactly the opposite, the world market helping to smooth out local extremes.
See the example of Russia, which has been forced to focus more on domestic food production because of sanctions. Today, annual inflation there is over 8%, and 83% of it is attributable to the rising price of food.
The third threat is the administrative increase in wages and pensions, for example, through the minimum wage or the wages of civil servants. But wages are also one of the prices, so fighting price rises by raising prices even more will not lead to a better outcome. People will only enjoy higher wages until they find that prices have risen even more.
The only tactic that works against rising prices is to slow down monetary expansion and to slow down the growth in public spending that is fueled by that expansion. Unfortunately, this is the only time when politicians sit on their hands.
