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Ukraine gov’t plans controls on key food prices

Ukraine’s government plans to set price controls on key food products to battle inflation which topped 16.6% last year, according to a draft proposal posted on the government’s Web site on Wednesday.

Analysts have feared that the government of Prime Minister Yulia Tymoshenko will turn to quick-fix solutions such as price controls, as it did during her previous tenure in 2005. The draft proposes to limit retail prices to 15% above wholesale prices excluding transport costs, on flour, bread, pasta, groats, sugar, beef, pork, poultry, sausages, milk, cheese, sour cream, butter, sunflower oil and eggs. It also aims to limit profits of producers of flour and bread to 12% above costs. “The realization of the plan creates conditions for stopping any unjustified rise in prices for socially important food prices on the domestic market,” the draft proposal says. Food products constitute 50-60% of the consumer price index (CPI) and rose almost 23% in 2007, after a devastating drought destroyed harvests.

Tymoshenko, who earned a reputation for high-spending populist policies during her last premiership, has already been accused by some international institutions of lax fiscal policy and warned on inflation. The government has stuck to its inflation target this year of under 10% despite the fact accumulated price rises of 5.7% in the first two months -- with the food component rising 8.6%. “With the aim of preventing further...price is deemed expedient to strengthen the influence of local authorities on setting food product prices,” an explanatory note to the draft proposal said. The government has to adopt the proposal, which requires no parliamentary approval. The local authorities then implement it. Several refused to do so last year, when former Prime Minister Viktor Yanukovich tried to cap bread prices. (Reuters)