The purchasing power of citizens in Montenegro by the end of 2024 is predominantly rated as a three on a scale of 1 to 5, according to the results of a survey conducted by the CdM portal for the “Citizen Reporting” podcast.
41.3% of respondents rated their purchasing power with a three, while 24.1% gave it a rating of 2, and 25 out of 430 respondents rated it a 5. A total of 58 respondents rated their purchasing power with a 1.
46.3% of participants stated that they can somewhat cover their needs with their income, while 37.6% said they are struggling to make ends meet.
The greatest financial strain for citizens, according to the survey, comes from food products, basic necessities, hygiene products, and sometimes fuel and rent.
When asked which groups of the population are most affected by rising prices, 56.6% of respondents said everyone is equally affected. Pensioners and people in social need ranked second and third with 19.1% and 18.8% of votes, respectively. The majority of citizens blamed poor fiscal and monetary policies of the government for the situation, with 83.5% agreeing with this assessment.
Regarding the government’s actions to limit prices, most citizens rated these efforts poorly, with 83.5% giving them a rating of 1. Despite this, 71.1% believe the government should be involved in price regulation, as they see it as part of their responsibilities. However, only 20.6% of respondents believe that actions to limit prices in partnership with retail chains are a good practice, while 26.7% think they are not effective, and 39.7% view them as a partially good practice.
Economic reforms in Montenegro, which led to higher wages, have contributed to inflation and a rise in prices. Economic analyst Mirza Mulešković explains that when more money circulates, prices rise, which is a basic economic principle.
“Despite the significant increase in wages and pensions, the standard of living for citizens has not improved in the past two years due to rising prices. The rise in prices has neutralized the increase in income. We haven’t created additional economic value; we’ve only administratively raised wages, which has increased the costs for businesses and, in turn, led to higher prices,” Mulešković explains.
He also points out that the influx of around 100,000 foreigners into Montenegro in recent years has placed additional pressure on the market, leading to a rise in real estate prices and costs in retail stores. Inflation has also been affected by global trends, particularly the war in Ukraine.
Mulešković adds that purchasing power has not increased as much as expected after the reforms of 2022. “If we look at official data from Eurostat, in 2019, purchasing power was at 50% of the EU average, and wages were lower than they are now. In 2023, it reached 51% of the EU average, which clearly shows that wage growth hasn’t changed much. It’s not just about wages; we need to consider how much that wage is worth when we go shopping, pay bills, and cover other expenses,” he emphasizes.
He also recalls that cumulative inflation in the past two years has exceeded 30%.
“Until 2022, the inflation curve in Montenegro and the EU were aligned. However, in March 2022, the inflation curve in Montenegro started to rise sharply, separating from the EU curve. This indicates something in the system caused a spike in prices. At that time, the minimum wage and all other wages were raised, which led to price hikes. Prices in the EU also increased due to energy issues, and if we had also faced rising electricity prices, the situation would have been even worse,” he says.
Mulešković agrees with the citizens’ assessment that the economic policies in the past period were poor and that price-capping actions were not very effective.
“We cannot expect to solve the inflation problem with catalog actions. You can’t fight inflation by limiting the margins on 50, 100, or 500 products. The market will find a way to make up for it somewhere else,” Mulešković explains. He adds that the most affected groups are those that haven’t seen an increase in income, such as recipients of social assistance, disability benefits, and mothers with three or more children.
The youngest citizens remain the most vulnerable group, and Mulešković stresses that policies should consider this demographic.
He also refers to a recent analysis by the Faculty of Economics, which showed that margins in 2022 were lower than in previous years, proving that retail chains were not primarily to blame for the price increases.
“Often, we hear that businesses have profited the most from price hikes. They did, but the state benefited more. The state saw an increase in revenue from taxes, and this will become more noticeable starting in January, as we have largely relied on financing public finances through indirect taxes. In the revenue projections for next year, over 50% comes from VAT. Starting in January, we will have a set of measures that will increase wages, leading to a rise in prices. Because, as I repeat, when you introduce a new excise tax or raise any tax, prices will go up. A business won’t lower prices and then pay taxes on that reduced price; they will raise the price of goods to account for the excise or tax,” Mulešković clarifies.
He believes that the entry of new chains like Lidl will not reduce prices, contrary to common belief.
“In Montenegro, there are both local and foreign retail chains, and despite this, prices are not dropping. It’s the same in the region. Look at Serbia, which also has an inflation problem. Lidl operates there, but are prices significantly lower? No. What is cheaper is Lidl’s own brand products. This is key. When you have your own product, you can influence the market and lower prices. Montenegro should focus on domestic production and make local products more affordable to consumers through subsidies,” he concludes.
Looking ahead, Mulešković expects a new rise in prices at the beginning of 2025 due to fiscal measures that will contribute to price increases.
“I predominantly expect the price of services to rise, as services tend to follow income levels. For example, hairdressers and beauticians will reason like this: ‘You used to earn 450 euros, and my service cost 15 euros. Now you earn 600 euros, so my service will cost 25 euros.’ This is a normal market reaction, and we have to expect it. It’s the law of supply and demand—if there is more money, services will get more expensive. We knew this would happen because both economic theory and practice show that if you don’t create additional value but administratively raise wages, prices will rise,” Mulešković concludes.
