Increase in the price of electricity will be accompanied by a one percent increase in the prices of other products

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As no “evil” goes by itself, the announced 10 percent increase in the price of electricity, which could happen already in the fall, will affect price growth in many industries. Therefore, citizens will feel more expensive electricity in two ways – first, directly through an increase in the bill for electricity consumption, and second, through an increase in the price of all other goods and services.

As Ljubodrag Savić, a professor at the Faculty of Economics in Belgrade, said in an interview with Biznis.rs, there is no doubt that there will be a 10 percent increase in the price of electricity, but he believes that this is not something tragic at the moment.

“It would be tragic if the price increase happened a year or two ago, when annual inflation was one or two percent”. We have now exceeded inflation of 10 percent, and we may have even reached 15 percent”, says Professor Savić, adding that some products are even more than twice as expensive.

As an example, he cites the increase in the price of artificial fertilizer, where last year farmers paid 45 euros for the required amount, and now the same fertilizer costs 140 euros. That’s a 300 percent price increase. According to him, some agricultural producers think that they will manage to collect this price through the final product prices, but he estimates that this is difficult to achieve.

“If last year the price of wheat was 27-28 dinars, and this year the state offers a price of 36 dinars, that is an increase of 30-40 percent, which is insufficient to cover the costs”, says Ljubodrag Savić.

Economist Danilo Šuković, speaking to Biznis.rs, says that it is quite certain that if the price of electricity rises, the prices of other products will rise as well. He adds, however, that a precise calculation would have to be carried out for any product or service.

“That legality certainly exists, but I can’t say now that if the price of electricity goes up by 10 percent, the price of bread will go up by five percent”, says our interlocutor, adding that energy is an input that goes into everything that is created, and in the end, profits are also spent on paying for energy, which certainly affects the residents’ budget.

However, according to his rough estimate, we could expect a 10 percent increase in the price of electricity to be followed by a one percent increase in the prices of other products.

Fighting inflation with big EPS problems

Professor Ljubodrag Savić says that the general rate of inflation in Serbia is still acceptable, but the ordinary world is affected by the price of electricity since it is one of the ubiquitous inputs, that is, there are no citizens and companies that do not use it. That is why it increases the inflation rate to the greatest extent.

Although he believes that a 10 percent increase in the price of electricity will “add fuel to the fire” of inflation, Professor Savić assesses that this is a tolerable measure at the moment because we also have “another pair of gloves” which is reflected in the problems of EPS.

“The state of Serbia, from a country that was self-sufficient in electricity production for decades, spent around 600 million euros on its import. With the new price increase, electricity will be sold to citizens at a price of 50 euros for one megawatt-hour, to the economy at 80 euros, and we will buy it on the free market for 350 to 400 euros”, says our interlocutor, adding that such balances were affected by the 2014 floods, when 210 cubic meters of water and mud flooded the coal fields, so did the management of EPS and its wrong decisions.

Professor Savić claims that it would be best if the price of electricity did not increase at all because people have no money, but it would essentially have to rise much more, which means that it should be determined in a different way.

“I do not agree with the linear price increase advocated by the Government of Serbia, because I think that it is necessary to move on to the determination of the economic price – it should be defined by the cost of electricity, regardless of whether it is domestic production or import”, emphasizes Ljubodrag Savić .

When it comes to consumers (households) who cannot pay that price, the professor says that an appropriate social policy must be directed towards them, since they have the conditions for a subsidized price of electricity.

“That is not such a large number of households that the state should subsidize in that way”. And when we draw a line between the calculation where we will be short 500-600 million, and maybe even a billion euros for imports, which will be paid by both rich and poor citizens, it is more worthwhile to have an economic price for electricity and conduct a good social policy that protects the standard of the poor and not puts them in additional debt”, he emphasizes.

Otherwise, assesses Savić, a cheap population policy that says that citizens cannot pay and that the country is “good” will lead to the sale of electricity at a several times lower price.

By the way, the increase in the price of electricity entails an increase in the prices of products for the preparation of which it is used in large quantities, but also of other energy sources and raw materials, and there are also public spaces that consume large amounts of electricity – restaurants, shopping malls, airports, hotels, congress centers and others.

Let us recall that the Minister of Mining and Energy, Zorana Mihajlović, denied the information that there will be electricity restrictions this winter, adding that it would be ridiculous if Serbia did not have a crisis plan for any situation, be it electricity or gas, Biznis writes.