The Slovenia Times

Inflation Disputes



nuary, which was the first in three years to have seen prices go up. Dearer food is the main culprit for inflation in January, contributing 0.5 percentage points, followed by fuels with 0.3 and hospitality services with 0.1 percentage points.

"Increases in inflation in the past few months can be detected in all countries of the eurozone, while the situation in Slovenia can be attributed to a different structure of spending and the lack of competition in all phases of food manufacturing and retail sectors," said head of Office for Macroeconomic Analysis and Development (IMAD) Boštjan Vasle. In addition to the situation on world markets, responses from those who shape prices in Slovenia will be key to price fluctuations in the coming months. "It is extremely important that the key macroeconomic policies continue to be tailored to alleviate inflation, and such guidelines should also be taken into account in agreements on wage increases," Vasle said.

Measured with the harmonised index of consumer prices, in December last year the annual inflation rate in the 13 eurozone countries reached 3.1%, while in the EU-27 it was 3.2%. The highest annual inflation rate was recorded in Latvia (14%) and the lowest in the Netherlands (1.6%); in Slovenia it stood at 5.7%.

Ineffective functioning of the state

In an interview in the last issue of Saturday's supplement of daily Dnevnik a former finance minister Dušan Mramor believes the current annual inflation rate of 6.4% is a reason for alarm. He also cautioned against recurring demands for indexation, something that he said Slovenia had gone into a lot trouble to do away with. He believes external factors carry only part of the blame for consumer price growth in Slovenia being twice as high as elsewhere in the euro area. Other culprits Mramor quotes are ineffective functioning of the state in industries lacking foreign competition, and inadequate fiscal and income policies. While Bajuk too has been blaming lack of competition, he says government polices are adequate.

Another European warning

European Commissioner for Economic and Monetary Policy Joaquin Almunia also repeated his warnings about the dangers inflation and the pension system posed to its finances. Uncurbed inflation became hot topic of politic and economic debates in Slovenia in last few weeks. One of the most outspoken critics, Milan Cvikl of the SocDems said the government was turning a blind eye on what he labelled the fundamental economic and political problem in Slovenia. He urged drawing up a comprehensive anti-inflationary scheme, a project in which experts, the central bank and social partners would be involved.

Finance Minister Andrej Bajuk insisted that Slovenia was far from being on the verge of disaster as he addressed an extraordinary session of parliament dedicated to inflation, while the opposition, which requested the session, repeated the government failed to heed on time relevant warnings by experts at home and abroad. Bajuk conceded that Slovenia was facing inflation, which he said was to a large extent the product of extreme hikes in food and oil prices. He quoted figures demonstrating the incumbent government had changed budget deficit into surplus, estimated at 0.1-0.2% of GDP for 2007.

Government should do more

Business officials issued a call to the government to do more to curb inflation as they met for a conference on inflation and competitiveness. Chairman of retailer Mercator Žiga Debeljak said that inflation has become a political issue first and an economic issue second. He said that this had to change, while politics had to step up to assume responsibility and tackle inflation instead of shifting the blame on retailers and down the food production chain.

This was echoed by the chairman of bread and pasta maker Žito Iztok Bricl, who claimed that the price of raw materials on global markets "went haywire". The business officials also called on the government to begin building consensus among the social partners on tackling inflation. This was echoed by economist Rasto Ovin, who said that the government should not let talks related to inflation up to the employers and trade unions.


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