Montenegro, 2022 business environment, Very high inflation rate

Published on 4. January 2023., Business Environment

During 2022, a constant increase in prices was observed. During the first eleven months of 2022, the average inflation rate was 12.7%. However, in November the inflation rate was at the level of 17.5%, which is the highest annual price growth rate compared to the previous months. The biggest increase in prices was recorded for food products (prices of milk, cheese and eggs increased by 49.5%, while the price of bread and cereals increased by 33.4%). Fuel prices recorded an increase of 51%.

Level of prices was influenced by both domestic and international market trends. The effects of economic support measures that were implemented during the pandemic, which consisted of pumping money into the economy, were followed up by trends in 2022. First of all, at the beginning of the year, the implementation of the Europe Now program began, which consisted of changing tax regulations and abolition health insurance contributions and an increase in the minimum wage, so that the wages of employees increased in January compared to the end of 2021 by 27.4%. Given that earnings were not monitored and were not caused by the growth of labour productivity, so cash flows did not correspond to commodity flows, which led to a greater supply of money and influenced price growth. In addition to these, the growth of other incomes of the population as a result of the adopted measures influenced the growth of income and the amount of money in circulation. However, a more significant increase in prices was recorded in March, when the war in Ukraine affected the trends on the international market, which spilled over to the Montenegrin market. The war in Ukraine, among other things, affected the price level of food products and oil.

In order to suppress the negative impact of rising prices on the standard of living of citizens and the economy, the Government of Montenegro adopted certain measures, which refer to the reduction of excise duty on fuel and the reduction of VAT for certain products, but also limitations of the merchant margin on basic foodstuffs and limiting the prices of pellets.