In recent years, discussions about rising prices and inflation have become common at family tables, workplaces, and on the streets. Inflation has significantly impacted the daily lives of citizens, becoming a reality shaping their financial well-being. Paraphrasing Karl Marx, “the specter of inflation is haunting the world.”
While the European Central Bank (ECB) considers an inflation rate of around 2% to be acceptable, actual inflation rates vary significantly across countries. In Montenegro, inflation has fluctuated in recent years, with periods of deflation, rapid inflation, and eventual stabilization. The factors contributing to these trends include the economic shock of the COVID-19 pandemic, global effects of the war in Ukraine, policies of different Montenegrin governments, actions of major companies focused on maximizing profits, and programs aimed at increasing salaries and pensions. This article analyzes inflation trends and their impact on the cost of living in Montenegro from January 2020 to the present, with a focus on causes and effects.
Inflation surge during Abazović’s government and stabilization under Spajić
The pandemic year of 2020 saw deflation, a drop in average prices due to reduced economic activity and lower consumer spending. While deflation can sound beneficial, it often signals weak demand, recession, and general economic slowdown. In March 2020, inflation was negative, with prices lower than the previous year. However, as global markets recovered, central banks, including the ECB and the U.S. FED, started printing money to stimulate consumption and restore disrupted supply chains.
This period of expansive monetary policy coincided with the government of Zdravko Krivokapić, who took office in December 2020. Inflation in Montenegro stood at -0.9% when Krivokapić became Prime Minister. By February 2022, when his government fell, inflation had increased to 6.4%. The Russian invasion of Ukraine in February 2022 worsened the situation, particularly through rising energy prices, triggering “imported inflation.” The price hikes of oil, gas, and electricity increased production costs, further driving up prices, affecting Montenegro, which is highly dependent on imports.
During Dritan Abazović’s government, inflation surged uncontrollably, peaking at 15.8% in November 2022. However, it gradually declined after that. When Milojko Spajić took over the government in October 2023, inflation started to stabilize. By July 2024, inflation was reduced to a more acceptable 3%, eventually dropping below the European average by the end of the year.
Comparison of Montenegro’s inflation with the EU and the region
Inflation affected not only Montenegro but also the broader European and global economies. From 2021 onwards, inflation increased across the region. However, in 2024, Montenegro’s inflation rate stood at 3.6%, while the EU and the eurozone averaged 2.6% and 2.4%, respectively. Despite higher inflation in 2022, Montenegro’s inflation rate was lower than in several EU countries, such as Belgium, Poland, and Estonia. In late 2024, Montenegro’s inflation was even lower than the EU average.
Income growth and standard of living
Rising prices affect the living standards of citizens, but the increase in incomes must also be considered. When inflation rises, salaries may not keep pace, reducing purchasing power. In Montenegro, from 2020 to 2024, wages and pensions saw significant growth despite inflation. The minimum pension increased by 249.4%, and the average pension rose by 79.9%. With inflation at 29.4%, real pension growth was 170% for the minimum pension and 39% for the average pension.
Similarly, net salaries also saw substantial increases, with the minimum net salary rising by 170.3%, and the average salary growing by 93.1%. Real income growth, after accounting for inflation, stood at 49.3%. This demonstrates that, despite inflation, salary and pension increases have improved citizens’ purchasing power.
Greedflation and profit growth in the retail sector
One factor contributing to inflation in Montenegro is “greedflation,” where businesses increase their profit margins in response to overall price rises. This is particularly visible in the retail sector, where major chains like Voli Trade and HD Laković saw significant revenue and profit growth. In 2021, Voli Trade’s sales reached over €251 million, growing to over €348 million by 2023. Similarly, HD Laković’s sales grew from €165 million in 2021 to over €225 million in 2023.
The retail sector’s net profits also surged during this period, reflecting higher profit margins. Voli Trade’s net profit doubled from €5 million in 2021 to over €11 million in 2022, and then tripled to over €15 million in 2023.
Conclusion
The economic indicators highlight the key differences between the two most recent governments in Montenegro. Dritan Abazović’s government was marked by uncontrolled inflation, peaking at 15.8% in November 2022, with no effective measures to control the price increase. In contrast, Milojko Spajić’s government managed to bring inflation down to acceptable levels and even below the EU average in 2024. Programs like “Evropa sad 1” and “Evropa sad 2” significantly contributed to salary and pension increases, boosting citizens’ real purchasing power despite global inflationary pressures.
However, the phenomenon of greedflation, seen in the retail sector, raised questions about the fairness of price hikes and the growing profits of businesses at the expense of consumers. As Montenegro moves toward economic stabilization, future efforts should focus on regulating markets and ensuring fair pricing to protect citizens from unjustified price increases.
