Inflation and indexation of pensions, an equation with “mismatched accounts”

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August marked the fourth consecutive month that the nation’s inflation rate declined. According to figures from the Institute of Statistics, there was only a 4% increase in the cost of goods and services from August of the previous year. Put another, if a product was 500 lek in August 2022, citizens purchased it last month for 520 lek. This year’s price growth rate is the lowest on record.

The ideal inflation rate for developing nations, such as Albania, is three percent. This is so that supply and demand may remain in balance and the market remains stable. However, the Supervisory Council of the Bank of Albania is maintaining the basic interest rate for the lek at 3 percent, even if the indicator tracking currency devaluation against growing prices is 1 percentage point above the objective.

Food costs are still rising.

In August, food and beverage inflation was still high despite declining. Since the Family Budget Survey for 2022 has not yet been released, INSTAT determined the inflation rate in this category to be 7.8 percent based on the data from the survey conducted in 2021.

In August, the products with the highest price increases were fruits (7.7%), dairy and eggs (9.1%), meat (9.6%), vegetables and potatoes (20.8%), and eggs.

“We cannot generate enough to meet the requirements of the entire nation, not even during the worst of times. That explains why our reliance on imports is so great. This year, domestic output was diverted toward export, which had a direct impact on market price increases, particularly for vegetables, according to agricultural sector analyst Ilir Pilku.

Reduced spending in reaction to price increases

April–June saw higher sales at local stores, supermarkets, bars, and restaurants, even if inflation remained historically high, at least when it came to food and drink. Retail sales increased by 5.2% in the second quarter of this year compared to the same period last year, according to data from the Institute of Statistics.

Visitors saved consumption

While Albanians are spending less because the country’s coffers have been practically depleted by recurrent crises, foreign visitors have kept demand high. The Bank of Albania’s data indicates that foreign visitors spent 930 million euros in the nation between April and June, which is a record amount.

Local customers are making less purchases. This is a result of both the depreciation of the euro and rising pricing. As is well known, a large number of families rely on remittances, and the depreciation of their currency negatively impacts them. Romina Radonshiqi, an economist, contends that the rise in tourists this year—whose numbers hit record highs—is the only factor that can account for the rise in demand for retail goods.

Seniors’ perceptions of the pricing crisis

Whatever their nature, crises all have one thing in common: the wealthiest get even richer and the poor get even poorer. For more than thirty years, it has been established that the elderly are one of the most vulnerable demographics, making up approximately 25% of the total population. The government and their children are the sole sources of financial hope for the majority of them.

“We cannot afford medications with what we now receive. And this is a hard truth, not a manner of speaking. Our kids are the object of our hopes. Thank God, they are headed in the right direction. As he wandered through downtown Tirana, A2 CNN pensioner Jashar Murati stated, “We hope the government will increase our pensions slightly to not burden them too much.”

Pensioners in metropolitan regions will earn an average of 1,500 lek extra starting next month, while those in rural areas would receive less than 900 lek.

An senior person living in the city will now receive 17,350 lek per month, but that amount will increase to 18,842 lek. The increase in pension for disabled urban retirees will be around 1,400 lek, while the increase for family pension beneficiaries will be approximately 700 lek.

**This hike will bring in an additional 3.2 million lek over the next three months, fully covering the inflation rate. **These are funds, but they are not enough; pensioners demand not fragmented but distinct increases** “After announcing that pensions will begin to index at 8.6 percent next month, Socialist Party MP Erion Braç spoke from the Parliament hall.

Inconsistent computations

Mathematical calculations provide the explanation. Since October 2022, when the pension indexing computation was suspended, the average inflation rate for food and drink has been 11.6%.”