According to Prime Minister Milojko Spajić, the wage growth in Montenegro facilitated by the Europe Now program has not contributed to rising inflation, which he describes as a recurring misconception.

During a panel discussion on the Analysis of Prices and Operations of Retail Chains in Montenegro held today at the Faculty of Economics in Podgorica, Spajić stated that inflation has not been influenced by either profit margins or increased demand.

“Our analysis reveals that from 2021 to 2023, cumulative import inflation reached 29 percent, while food inflation hit 31 percent. This leads to the logical conclusion that the main drivers of inflation are the rising costs of inputs,” Spajić explained.

He mentioned that margins have been regulated since September of last year, coinciding with the implementation of the Europe Now 2 program.

“The average inflation rates in November, December, and January have been lower in Montenegro than in the eurozone. This indicates that net earnings are not included in the companies’ costs, countering the frequent narrative,” Spajić noted.

He emphasized that in smaller economies like Montenegro’s, wage increases do not typically spur inflation.

Spajić further pointed out that there has been no increase in demand in Montenegro since 2022, suggesting that there has not been a rise in product purchases, nor has wage growth spurred demand or impacted inflation.

He remarked on the previous state of the Montenegrin labor market, which he characterized as a “wild economy,” asserting that many workers received a portion of their wages “in cash.”

Spajić stated that there were 210,000 employees in Montenegro before the Europe Now programs were initiated, as opposed to today’s figure of 287,000.

“Do you really believe that nearly 80,000 new jobs have been created in just two and a half years? Certainly not. Those are 80,000 jobs that have simply been formalized,” Spajić clarified.

He noted that, although the share of labor in the gross domestic product (GDP) has risen, productivity appears to have declined, a decrease he believes is not entirely accurate.

“While margins for retail chains dropped in 2022, they have since recovered in 2023, as evidenced by a net profit that has tripled over the last two to three years,” Spajić observed, emphasizing the importance of a thriving economy for the government.

He criticized the analysis that linked wage growth to inflation as fundamentally flawed.

“The data you relied on from Monstat was unreliable for 2021 and earlier years due to the prevalence of the shadow economy,” Spajić explained.

Maja Baćović, a professor at the Faculty of Economics, presented an analysis titled Macroeconomic Environment in Montenegro from 2021 to 2023, primarily focusing on the food and beverage industry.

She stated that their research aimed to determine whether retail chains contributed to the rise in food prices through their expenses.

“The primary factors driving price increases include surging purchase prices, material costs in the retail sector, and rising gross salary costs. Meanwhile, retail chain profits have remained stable,” Baćović noted.

She added that price increases occur when wage growth outpaces labor productivity.

Baćović emphasized that changes in margins do not drive food price increases in the retail sector, which are primarily a result of the inputs used.

Furthermore, she mentioned that the study did not delve into the reasons behind wage growth.

Branko Krvavac, Head of the Prime Minister’s Office, criticized the foundational premises of the analysis.

“You mentioned that price increases are unavoidable when earnings grow faster than productivity. While company profits may vary, these companies have not sustained losses. There are 15 new employees in the retail sector,” Krvavac remarked.

He pointed out that despite limited margins, the country is currently experiencing monthly deflation.

“With restricted margins, the Europe Now program, and inflation rates lower than the EU average, we see a stark contrast with countries like France and Bulgaria, which have no similar wage growth or tax reductions on labor, yet experience higher inflation,” Krvavac stated.

He stressed that the Europe Now initiative itself has not negatively impacted businesses or their revenues but has instead enhanced company profitability.

Mijat Jocović, Dean of the Faculty of Economics, questioned the integrity of professors who choose to remain silent.

“What kind of educators would we be if we refrained from expressing our opinions? What kind of society would we have if academic professionals claimed incompetence and lacked perspectives?” Jocović asked.

He assured that the professors had no reservations about conducting the study.

Jocović recognized that the study and margin limitations bring forth a critical issue—evaluating the nature of economic institutions being established in Montenegro that, he asserts, must prioritize openness.

“The core issue is the existence of monopolies in Montenegro across various markets, not just in food retail, and whether market abuse is occurring. It is functional institutions that determine monopolies, not academics at the Faculty of Economics,” Jocović concluded.

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