And Where Is Demand Decreasing If Not in Retail?

For months, economic experts, including HGK’s chief economist Goran Šaravanja in this week’s issue of Lider, have continuously pointed out high demand as one of the key causes of stubbornly high inflation rates in Croatia. In short, persistently high demand, otherwise a direct consequence of the sudden rise in wages and the associated consumer optimism, justifies high prices of goods and services. Or, more simply, as long as the consumer pays some price, it is justified, regardless of whether it is objectively perhaps too high, or inflated. Anyone who sells something, according to the basics of macroeconomics, will try to get the best, or the highest possible price in the market for it. If there is demand, the price is justified; if there is no demand, the price falls because the market has not ‘blessed’ it. That is economics, fool. And, really, there is nothing to complain about; it is a matter of knowing macroeconomics for a solid two at university. My problem, however, is the following: how do the same people who yesterday interpreted that aggregate demand must fall in order for price growth, in other words inflation, to slow down today hold their heads in their hands due to the boycott of retailers?

What the Doctor Ordered

A broad boycott, in fact, is just that – an organized and mass reduction of demand. Just what ‘the doctor ordered’. Or not? Whether this reduction in demand is the result of an agreement or individual action is actually completely irrelevant for inflation; the important thing is the outcome, which is reduced demand. By the way, a boycott is also, which is conveniently forgotten, legitimate market behavior. You know, just as it is, as we have just established, legitimate to try to extract the highest possible price for your product or service. In that sense, I do not understand where exactly all these economists and hobby experts thought to reduce aggregate demand. By mass canceling trips to the Maldives? By collectively giving up Botox injections? By jointly canceling gym memberships? Really, where should this wild aggregate demand visibly and noticeably decrease if not in retail and pubs?

We can also put it differently. If it is unfair to concentrate the boycott on retailers, whom should consumers boycott? Suppliers? How exactly do we do that? The state? Well, we have already boycotted the state in the most efficient way possible, by hundreds of thousands of people leaving for other countries. We can easily agree that no inflation started in retail and that, consequently, retailers are not to blame for it, but that still does not solve the problem at the beginning of the text – where is the explosive consumption that has long been the fuel for stubbornly high price growth in Croatia decreasing? According to Eurostat, in January we were the infamous record holders of the eurozone with now astonishing five percent inflation, compared to the average inflation rate in the eurozone of 2.5 percent. We have exactly one hundred percent higher inflation than the average, but do not blame retailers, because they are not to blame. O.K., no problem, then who? Where should we drastically cut consumption? I have not heard that answer in countless musings about inflation and boycotts yet. And somehow I think I won’t.