30th April 2023, Skopje – High inflation shapes the redistribution of income, slows down the consumption, thus also contracting the economic activity and slowing down the economic growth. Profit margins higher than the market justified value exert pressures on the prices and the wages, thus preserving the inflation for a longer period of time. In times when the global economy confronts many challenges, mostly related to the persistent inflation, policy creators will focus on fighting inflation at any cost. Policies of our Government are focused on three fronts – supporting the living standard of the citizens, in particular the most vulnerable categories, curbing inflation, as well as supporting investments and maintaining positive growth rates in the short run, followed by its acceleration.
These are the conclusion in the latest column of the Minister of Finance, Fatmir Besimi, dedicated on maintaining the growth amid slowed down global economy, high inflation and income redistribution.
Therein, Minister elaborates on the role the inflation plays in terms of income redistribution, usually affecting, to a greater extern, the lower-income households. By reallocating the funds to those who are well off, who will save rather than spend, the economic activity will be contracted. However, inflation also affects the redistribution among the economies, since the price surge also impacts the competitiveness of the export.
Besimi also point out the profit margins, leading to persistent inflation..
“I have recently read a very interesting analysis on the correlation between inflation and profit margins, based on data of Eurostat and Bloomberg Analytical Center,”. The analysis emphasizes that countries with the highest profit margins also experience the highest inflation in Europe, such as Lithuania, Ireland, etc. European Central Bank has also observed that high profit of companies pushes up prices and wages. This generalizes the exceptions, however it is interesting for a scientific debate and for the economic policy makers. Thereby, the business community is to be given recognition for the displayed resilience to the crisis and the courage to invest, as well as the innovation in their business solutions. There is always a new opportunity with crisis”, Besimi wrote.
Minister further indicates that to the end of mitigating the effects of the crisis amid fiscal consolidation, targeted assistance to vulnerable categories and subsidized electricity price for the households will continue to apply. Increased minimum wage and introduction of a mechanism for its adjustment to the costs of living and the increase of the average wage is a systemic solution aimed at protecting the low-income households against the inflation.
“Very soon, two minimum wages will be enough to pay for a basic expenditure basket, compared to few years ago, when three minimum wages were needed to pay for the same goods. Similar mechanism has been introduced under the amendments to the Law on Pension and Disability Insurance and the Law on Administrative Servant, all to the end of adjusting the minimum wage. Activities are undertaken for a new legal solution to regulate the wages in the entire public sector, thus preserving the living standard and adjusting them to the economic growth. Yet another mechanism to protect the vulnerable categories is the guaranteed minimum income, as well as a series of measures, such as the energy poverty reduction measure, etc.”, Minister of Finance wrote, also adding that support to strategic agricultural products has also been enhanced, whereby small- and medium-sized enterprises were also supported, with support in the form of electricity price subsidies and favorable credit lines for liquidity and energy transition.
Besimi also pointed out that amid disrupted global value chains and geo-economic fragmentation, a possibility opens to attract new foreign direct investments, which will additionally underpin the economic growth in future.
Hence, we continue implementing the programs for supporting the domestic and the foreign investors, focusing thereby on those that bring higher value added to the production, as well as employ highly professional and skilled personnel.
“Our goal, in addition to managing the effects of the crisis, remains to be the economic growth and better living standard of the citizens. Thereby, downward trend in unemployment and trend of rising wages will continue, with the productivity growth still remaining as a great challenge. Support to active labour market measures is increased, aimed at job creation, and new measures for supporting the youth in the working process are implemented, as is the effective measure “Youth Guarantee”. We continue implementing sound economic policies and reforms to the end of boosting the competitiveness of our economy by improving infrastructure, business climate, rule of law, digitalization, green transition and energy independence, as well as strengthening human capital as key component for the economy’s growth and development”, Minister of Finance, Besimi concluded.
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