The new price hike in the consumer market of Azerbaijan

The new price hike in the consumer market of Azerbaijan

The observed price escalation in the second half of January intensified in the past few days. Our observations find an increase in the price of both food and some non-food products. Not only imported products but also domestic products experienced a price increase. According to the analysis by CESD, the inflation rate was more than 3 % in almost all segments of the consumer market in January.

What are the main reasons behind the price increase and how long will it last?

Initially, our analysis shows that the removal and accounting of commercial activity from the simplified tax system, as a result of change to the Tax Code, has led to an increase in the cost of trading entities. Thus, entrepreneurs engaging in trade activities who only pay 6% tax on their turnover cannot use this opportunity starting from January 1, 2019. This, in turn, has led to an increase in costs and prices. CESD disagrees with the cancellation of the preferential tax system because it does not benefit those engaged in trade.

Secondly, the introduction of higher excise taxes on a number of products imported into the country, including tobacco products, alcoholic beverages, and cars, has caused prices to rise in the consumer market. As we mentioned earlier, the systematic increase of excise taxes on imported goods is not desirable and leads to price increases. In recent years, there has been an increase in the import excise duty on imported products, which, inevitably, leads to the inflation of prices.

Unfortunately, on the other hand, the recent decision by the government to increase the minimum wage and pensions has caused some entrepreneurs to raise prices on their goods. Such price increases have already been observed, even though the decision regarding the increase in wages and pensions will only come into force on March 1. Note that, from March 1, 2019, the minimum wage in Azerbaijan is set to increase by 50 manats to 180 manats ($ 105.8 US) and the minimum pension to 160 manats ($ 94.1 US).

From that perspective, it would be more advisable to conduct monitoring of the consumer market by the Ministry of Economy. Moreover, a new stimulation mechanism should applied to entrepreneurial entities that are no longer subject to the simplified tax. Otherwise, the accounting system leads their costs to increase and this, in turn, means the increase in prices. Otherwise, the accounting system will lead to an increase in the cost of entrepreneurial entities, which as a result will lead to an increase in prices. Considering that that we will celebrate Nowruz in the next month, a reduction in food prices is necessary for the government to optimize the price level for food products within the framework of a market economy. Since any price hike has a negative effect on the social well-being of citizens, the government has to avoid an increase in prices by reducing the cost of those who are engaged in trade.

© CESD 2019

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