Economist Hashchuluun: There is no other way than accepting inflation, but controls should not be lost
INFLATION & INFLATION
Commodity goods prices go up, making people nervous and an unfamiliar word-inflation fumble their pockets. Today those officials, who previously announced economic growths loudly and tried to hide inflation rates quietly, began to stumble in front of inflation. Inflation rate that is said not exceeded 15 percent at the beginning of the year, has reached 25-33 percent now. With reference to it, we got views from economists on inflation rate and further measures.
Mr.Hashchuluun(Ph.D), Director, School of Economic Studies, NUM
What about 33% inflation?
Lately, per capita income underwent a noticeable increase. It was announced that per capita income reached USD 1000 in 2006, whilst it was USD 1400 in 2007. Also cash in hand went up slightly that wages of public servants and income of companies increased even though income of everyone didn’t go up evenly. Moreover, pension disparities have been eradicated, young family and other social care services multiplied. Plus, foreign investment increased and money transfer of Mongols in foreign countries contributed to the growth. The number of highly-waged foreign professionals went up. Income has shown increases, whilst industry not. Industrial capacity and productivity is weak, 70-85 percent of commodity goods are imported through an only port, Zamyn-Uud port. Therefore there is a succumb money on one hand and on the other hand demand has been increased and price went up due to lack of productions. It was undeniable that price would increase gradually. And the other reason is our economy is very open and depends greatly upon foreign markets because it doesn’t produce even foods at home. Increasing copper price in the world market is of positive impact on Mongolia; however we are affected by price increase when food product price goes up.
Nowadays gas issues are being discussed everywhere?
Mongolia is dependent upon Russia for gas. Russian itself, do not consider growth and fall of world market prices. Its consumption exceeds the production and production costs increase as well. It increases tariff in fall in order to protect its domestic industries and productions. We are hit hard by it always. The Government took a lot of measures lately, but they were temporary ones. However it’s believed that price would go down because we are to import gas from other countries such as China.
Also prices of apartments and real estates have increased?
It is because of different reasons. 1st, the Government initiated 40.000-family housing program, increasing demands and resulting growth in material prices. On the other hand, there is awareness among the public that wages would go up and people used to buy apartments with bank loans. Now Mongolbank takes a tight monetary policy to reduce loans and price of apartments, except luxury ones, halted. Price of heating and water, which has previously been held for long, increased rapidly. It might not go up in the future.
Do you mean the long-term inflation would drop down?
There is a hope that the market conditions would become better because of improved import flows since we are redoing railways with domestic and Millennium Challenge Account financing. Power plants and infrastructure sector is being improved, also domestic food supply would be positive due to Atar programme. Usually, transport cost of domestic food supply is relatively low. And finally bargaining would decrease as agricultural agents commence operating.
People feel very concerned that inflation would increase in the future. But you have very positive visions?
The price would not decrease in the near future, however there is a hope that its speed would slow down. Our economy undergoes an aggressive development. On the other hand price increase is the negative side of economic growth. The World Banks concludes that Mongolia had over-heat economy. Rapidly growing economy is accompanied by inflation according to the world trends and inflation of 10 to 15 percent accelerated the economy. For example, as for a company, if its income and benefit increases it would be possible to make investments and operate better. Therefore we have to accept that inflation is undeniable. Importantly, we should not loose control. Measures on fighting and eliminating inflation might be taken. The newly formed Government must improve its policy. As I see, wages would not increase in the year 2009. Right steps towards decreasing costs have been taken. It should have been done earlier. Inflation would not be this high if tight monetary policy is pursued and budget expenses are cut.
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