2024-07-31 07:38:53
“The preliminary annual inflation in July, compared to this period a year ago, was 1.1 percent, and the preliminary average annual inflation was 1.9 percent. As if we can be happy that, at least in Lithuania, inflation is really under control. But I suggest you take your time to be happy, at least for two reasons.
Although the European Central Bank’s (ECB) interest rate hikes have borne fruit, they are quite bitter in the case of Lithuania. I can only agree with Raimondas Kuodis: raising interest rates in some sectors of the economy may increase inflation instead of reducing it. Because interest is a cost that will be included in the price of the product, and there won’t be much competition either, because as loans become more expensive, investments in production decrease,” V. Janulevičius wrote on his Facebook account on Monday.
According to the LPK president, such a redistribution of money affects investments in new jobs.
“When banks raise interest rates, consumption may decrease, but people still spend their money, just elsewhere. And not only people, but also companies that, instead of investing and transforming, spend the money they earn paying increased interest.
Yes, consumption decreases because money is redistributed elsewhere. However, this redistribution of money affects not only consumption, but also the creation of new jobs and investments in new jobs. After all, investing in better, higher value-added workplaces could, in turn, lead to higher wages. But there is simply no money for that, it has already been spent to cover interest,” said V. Janulevičius.
Taking into account the current situation, the president of LPK emphasizes that the simplest solutions are not necessarily the wisest.
“As long as productivity does not rise, and only interest, taxes and (partially artificial) wages rise, we are in a vicious circle, and the share of our production in the gross domestic product (GDP) is declining.” But only the sold product or service is the engine of our export and, at the same time, of the economy.
So, a more accurate conclusion is this: we saved from inflation, but drove into recession. Raising interest rates is the simplest response to inflation, but not necessarily the wisest. And the state should assess how our economy grew during the whole five years of crises, when consumption grew, and how it is stagnating now. Assess yourself and take steps so that the main engines of the economy – the exporting sectors – are not pushed into recession,” V. Janulevičius shared his insights.
2024-07-31 07:38:53