The Kosovo Banker

Chain effects as a result of global inflationary pressures

ARIJAN HAXHIBEQIRI - DEPUTY CHIEF EXECUTIVE OFFICER BANKA EKONOMIKE

T he last two years have featured numerous economic and social hardships, from the Pandemic to the Russia’s war in Ukraine, “shocking” even the world’s most powerful economies such as the US. As a result of such developments, in March, inflation in the US was expected to rise by 8.5%, the highest in the last 40 years! The same inflation trends have taken hold of Eurozone countries, where in March inflation rate was expected to rise by 7.5%! Since the beginning of the Russian invasion of Ukraine, oil and natural gas prices have risen sharply. Given that EU countries rely for 40% on their natural gas needs on imports from Russia, which represents the main source of energy for these countries, the increase in energy prices is one of the main causes of rising inflation in EU countries. Moreover, the difficulties/ disruptions caused in the supply chain, as well as the increased demand since the pandemic and especially since the beginning of the Russia-Ukraine was, and the recently imposed financial and political sanctions against Russia by Western countries, have led to rising product and service prices globally. Rising energy prices and Kosovo’s negative trade balance (according to the Kosovo Agency of Statistics), data on foreign trade of goods in Kosovo show that the trade deficit rose by 41.7% in January 2022, compared to the same period of 2021. Kosovo relies to a large extent on the import of products and services, which has led to the increase of prices of products and services in Kosovo and the region! In the context of the negative impact of inflation in Kosovo, the impact is allencompassing, both economically and socially. First of all, inflation has a negative impact on the wellbeing of our citizens as a result of rising prices of consumer goods (according to the Kosovo Agency of Statistics, “The overall harmonized index of consumer prices has increased on average by 7.5% in February 2022, compared to February 2021); secondly, many activities and economic sectors are affected by the negative impact of rising prices, especially sectors such as construction; thirdly, rising energy prices also negatively affects the manufacturing sector, increasing manufacturing costs for domestic products; and last but not least, the chain effect of rising prices to some extent will affect all economic activities, thus causing a decrease in the level of economic development in 2022.