European Country Bans Price Hikes in Desperate Bid to Tame Inflation

Belarusian President Alexander Lukashenko speaks during a news conference following talks with his Russian counterpart Vladimir Putin at the Kremlin in Moscow, Russia, on Sept. 9, 2021. Shamil Zhumatov/Reuters

The Eastern European country of Belarus is taking drastic steps to tame runaway inflation by prohibiting consumer-facing businesses from raising prices.

The price controls were announced on Oct. 6 by Belarusian President Alexander Lukashenko, who was cited by state media as saying he was imposing the ban on consumer price increases in response to “exorbitant” inflation.

“From 6 October, any increase in prices is prohibited. Forbidden!” the state-run Belta news agency quoted Lukashenko as saying during a meeting of government ministers.

The price caps start “from today. Not from tomorrow, but from today. So that they do not inflate prices over the day,” Lukashenko said, according to the outlet.

Inflation in the Eastern European country, which is closely allied with Russia and has been hit by Western sanctions over the Ukraine conflict, is expected to come in at 19 percent for all of 2022, according to Belarus state media.

Prices ‘Hit the Ceiling’

Inna Medvedeva, chairwoman of the Belarusian National Statistical Committee, was cited by Belta as saying that inflation in August hit an annual 13.8 percent and that more price pressures were building.

The Belarusian leader was cited by AFP as saying that “the task is to return to an inflation rate of 7–8 percent by next year.”

“They hit the ceiling,” Lukashenko complained of rising prices, adding that price caps could be eased in rare exceptions permitted by authorities.

“Immediate detention and criminal proceedings” await those who flout the new price hike bans, Lukashenko said, vowing to punish businesses that try to close shop or leave the market.

Belarusian Prime Minister Roman Golovchenko was cited by Belta as opposing the price controls.

“In Belarus, price regulation is the strictest in the CIS [Commonwealth of Independent States] and one of the strictest in the world,” Golovchenko said, arguing that over-regulating could have “the opposite effect.”

Price Controls ‘Analytically Crushed’

Soaring inflation in the United States has prompted some renewed interest in the idea of price controls, which were resorted to during the inflationary spell of the 1970s. While that experiment was widely considered a failure, the current bout of inflation has reignited some debate around the topic.

The liberal think tank Roosevelt Institute ran an op-ed last November that called the latest inflation headlines an opportunity to revisit price controls and basically argued for them to be considered among a “broader spectrum” of tools to deal with price pressures, some of which are down to supply-side snags that interest-rate hikes by the Federal Reserve can’t solve.

The Hoover Institution, a conservative think tank, published an op-ed in January 2022 that pushed back on the revival of price controls, warning that such measures cause shortages, result in inferior products, lead to unfair outcomes, and generally have been “analytically crushed.”

“Price controls cause shortages, waste people’s time in line, sometimes lead to favoritism by suppliers, and, as in the case of oil and gasoline in the 1970s, can lead to harmful regulation that lasts for decades,” wrote David Henderson, a professor of economics and a research fellow at the Hoover Institute.

A recent study by a team of economists, including from the Fed, showed that the current inflationary spell hounding American households was mostly caused by a stimulus-fueled surge in demand, accounting for 60 percent of inflation.

Supply-side bottlenecks also played a significant role by making the problem worse.