Page 47 - bne monthly magazine October 2022

bne October 2022 Central Europe I 47
back-to-school shopping in an envi- ronment of sharply rising prices. 33%
of those interviewed by Deloitte said their household financial situation had worsened over the last year, while 37% expected to have to spend more on school supplies this year than they paid in 2021 for the same items. More than three- quarters (77%) planned to switch brands if preferred products were too costly or out of stock. A separate survey by United Media Services found almost one in 10 parents were concerned about higher prices for back-to-school products.
The latest data from statistics office INS shows Romania’s retail sales volume index increased by 2.5% y/y in July, which was the weakest annual growth rate in over six quarters. Moreover, as reported by bne IntelliNews, households’ purchasing power is being eroded by rising inflation, and retail sales are
only shored up by people buying now because they expect consumer goods will get even more expensive in future.
Even in emerging Europe’s richest coun- try, Slovenia, higher prices are causing more people are turning to supermarkets such as Lidl and Spar that stock more discounted goods. Annual inflation
in Slovenia, where the average wage is around €1,300, was 11% in August and was influenced the most by higher prices of fuels, electricity and food.
A bne IntelliNews reporter has noted the sharp increase in coffee prices, much
to the dismay of the population in a country where the coffee culture is just as important a part of social life as in neighbouring Italy. Before the pandemic, the usual price for an espresso or lungo was €1 or up to €1.20 in chic cafes. Prices are now at €1.30-1.40 in regular cafes and as high as €1.50-1.70 in higher-
end venues (with the range in prices depending on whether cafes charge for takeaway cups).
Mixed responses
Governments in the region have taken
a variety of approaches to tackling the crisis. Some have adopted a blanket approach, helping everyone affected by rising prices of, for example, electricity or car fuel, such as Romania’s much-criti-
cised ‘cap and subsidy’ scheme for energy prices, or Bulgaria’s handouts for drivers.
More targeted approaches specifically helping lower income households are rarer – not least among those govern- ments with elections coming up that want to boost their ratings by offering something to everyone, not just the poorest in society. There are excep- tions, though, like Slovenia’s one-off energy supplements that are specifically for low-income households and other vulnerable groups.
This is despite clear indications that poorer households are being dispropor- tionately affected. A working paper from the International Monetary Fund (IMF) forecasts that the average European household will experience an increase of around 7% in its cost of living this year
the pass-through to retail prices simply delays the needed adjustment to the energy shock by reducing incentives for households and businesses to conserve energy and enhance efficiency. It keeps global energy demand and prices higher than they would otherwise be,” the IMF economists argued.
“Moreover, the increasing cost of these measures is squeezing economies’ limited fiscal space as high prices persist ... Policymakers should shift decisively away from broad-based measures to targeted relief policies, including income support for the most vulnerable.”
The fund warns that in many countries, the cost of measures in response to the energy crisis – mostly broad price- suppressing measures – will exceed 1.5% of 2022 economic output.
“Even in emerging Europe’s richest country, Slovenia, higher prices are causing more people are turning to supermarkets such as Lidl and Spar that stock more discounted goods”
relative to what was expected in early 2021. However, not only does the impact vary widely across the EU – Estonia and Czechia are forecast to be the worst affected of the EU member states, while the impact in Hungary will be minimal – but within countries, the burden falls most heavily on low-income house- holds that spend a higher share of their budgets on electricity and gas.
The IMF puts the case for targeted measures aimed at poorer households rather than blanket support, especially in countries like Estonia and the UK, where living costs for the poorest 20% of households are forecast to increase by about twice as much as those for the richest households.
“So far, Europe’s policymakers have responded to the energy cost surge mostly with broad-based, price-suppress- ing measures, including subsidies, tax cuts and price controls. But suppressing
Caps and subsidies in Southeast Europe
The parliament of Slovenia adopted temporary measures to eliminate the consequences of the high cost of living for the most vulnerable groups of citizens on August 31.
Low-income households will obtain a one-time energy supplement of at least €200 with the amount to be increased depending on the number of children, up to €314. An energy supplement will also be given to employees, parents of children with special needs, pensioners and some other people, provided they live in a low-income household. The first allowance payments will be made in November.
Due to the rising food prices, which also affect the cost of providing meals at work for employees, the government decided to exclude reimbursement of food expenses from the tax base.
www.bne.eu