Inflation of 1%, a decrease in GDP, hourly wages...

Azerbaijan is experiencing a rare economic paradox: inflation has fallen below 1%, yet the country’s GDP has seen a significant decrease. According to official data from the State Statistics Committee, the annual inflation rate from January to April 2024 was just 0.7% compared to the same period in 2023. This includes a 0.7% decrease in the consumer price index for food, beverages, and tobacco products, a 1.3% increase for non-food products, and a 2.4% rise for paid services.

In stark contrast, Azerbaijan's GDP fell by 4.5% in the first four months of 2024, amounting to 38.18 billion manats ($22.45 billion USD). The decline is primarily attributed to reduced oil revenues. The oil and gas sector, which has traditionally been the backbone of Azerbaijan's economy, saw a marginal decrease of 0.2%. Meanwhile, the non-oil and gas sector grew by 8.7%, but this positive development was overshadowed by a 13.2% decrease in industrial production.

The government is considering a significant policy shift in response to these economic challenges. The Ministry of Labor and Social Protection of the Population has been tasked with preparing proposals to replace the monthly minimum wage with an hourly minimum wage by July 1, 2024. This move aims to address wage disparities and improve the living standards of Azerbaijani workers.

Economist Natig Jafarli, speaking on the “Difficult Question” program, provided critical insights into these developments. He pointed out flaws in the Azerbaijani inflation calculation methods. The current inflation basket includes over 500 types of goods and services, and official statistics often reflect minimum cost changes. Jafarli argued that if consumer goods prices were calculated separately, the inflation rate would be significantly higher than reported.

Jafarli also highlighted the absence of alternative statistical sources and databases, which allows the government to present favorable economic statistics. In many other countries, inflation data from employers and employees’ unions are published alongside official statistics, providing a more balanced and accurate picture. "There is no such mechanism in Azerbaijan," he lamented.

The economist emphasized that the average Azerbaijani spends about half of their income on food, a clear indicator of economic hardship. “It is generally recognized that if the average resident of a country spends more than 20% of their salary on food, then this is a poor country,” Jafarli noted. In developed countries, spending more than 20% of income on food suggests a lack of financial flexibility to engage in activities that characterize a middle-class lifestyle.

Even taking the State Statistics Committee's data at face value, Jafarli pointed out, paints a troubling picture: 50% of salaries go to food, 20% to utilities and transport, and 30% to healthcare. "There is no money left for human development! Most of us cannot afford such a luxury – we are a poor country," he asserted, despite official figures claiming poverty and unemployment rates of just 5%.

As Azerbaijan navigates these economic challenges, the government’s response will be crucial. Ensuring accurate and transparent economic data, improving public services, and fostering a more diversified economy are essential steps. The proposed shift to an hourly minimum wage could be a step in the right direction, but it will require careful implementation and monitoring to ensure it benefits the country's most vulnerable populations.