How much should wages rise to offset inflation?

Baku/14.06.22/Turan: In recent days, there have been reports in the media about the upcoming increase in wages and pensions. According to the report, the state budget for 2022 is drawn up based on the oil price at $50 per barrel. Currently, the price of oil on the world market has exceeded $128. When incomes increase, first of all they go to social spending. When they say social spending, they mean wages, pensions, healthcare costs, etc. According to official statistics, the official inflation in Azerbaijan has been 12.4% since April.

How much should wage and pensions be increased in order to increase the purchasing power of the population? Is there any reason for such messages? Could this be an "information drain" by the government to reduce social tensions and raise the bar of expectations?

Economist, chairman of the Azerbaijan Democracy and Prosperity Party Gubad Ibadoglu answers these and other questions in the "Difficult Question" program.

According to him, before making a decision on raising salaries, benefits and pensions, two important assessments should first be made. “Firstly, it is necessary to assess whether there really is a need to increase salaries, benefits and pensions of citizens? The best way to properly assess this is to compare the rate of inflation with income growth. Unfortunately, the official statistics of Azerbaijan do not carry out calculations reflecting the growth of inflation. Based on the information provided, the inflation rate in Azerbaijan is 18%. However, I believe that in reality it is higher. Because there are goods in Azerbaijan, the prices of which have at least doubled. These are food items. At the same time, the rise in prices has not been stopped, it continues,” the economist noted.

Therefore, according to him, an increase in salaries, benefits and pensions is required. “Increase in prices contributes to an increase in consumer spending. And if the government does not decide on such an increase, this will lead to the impoverishment of citizens,” he explained, adding that households, in order to make ends meet, are sometimes forced to take consumer loans, borrow money or seek funds from other sources. sources.

“Secondly,” Gubadoglu noted, “in order to increase salaries, pensions and benefits, it should be clarified whether there are financial resources for this?”  He believes, there are such  means.

“According to the results of the first quarter of this year, a surplus of 2.5 billion manats formed in the State Budget of Azerbaijan. The income of the State Oil Fund of the Republic of Azerbaijan turned out to be higher than predicted. For the first 5 months of this year, they were more than twice as high as last year. And revenues from gas over the same time increased by 8.5 times. Customs revenues to the state budget also increased. Thus, the State budget has enough funds.”

In short, there is both a need and an opportunity to raise wages, pensions and benefits. The decision is up to the government.

“According to available information, this issue of introducing changes to the state budget will soon be submitted for discussion by the Milli Majlis. It is assumed that the expenditure part of the state budget will be increased by at least one billion manats,” the expert predicts. –0—