Production and Consumption: Expert Explains Why Inflation Exists in Ukraine

Economic expert Yuriy Havrylechko explained how to close the gap in Ukraine’s budget during the war and why inflation is rising — and how it can be stopped.

He spoke about this on the program “Anti-Show” with Ruslan Bortnyk.

“If no spending cuts related to peacetime expenditures are made, there will not be enough money. If loans are confused with debt or with aid, there will not be enough money. And in general, if you have a hole in your pocket, what difference does it make how many banknotes you stuff into it? It will never be full anyway — everything will fall out. That’s exactly what our budget looks like now: a torn pocket. No matter how much money you push into it, there will be no benefit,” Yuriy Havrylechko argues.

According to him, the National Bank continues to maintain a fantastically high key interest rate, meaning that money is very expensive in Ukraine, while at the same time people keep telling fairy tales about how this rate supposedly affects inflation. No, the expert emphasizes, it does not influence inflation in a positive way at all, because the cause of inflation in Ukraine is not an excessive amount of money among the population. Ukraine does not have consumption-driven inflation.

“We have production-driven inflation. Because of regulation and an inadequate tax policy, the cost of production is constantly increasing. We have no problem with an oversupply of goods. Our entire tax system is oriented toward a non-existent reality, because VAT is a tax on added value, created to shift all costs onto the final consumer. De facto, it is a kind of safeguard against crises of overproduction. Tell me, please, when has Ukraine ever had a crisis of overproduction? Or when is one planned?” Yuriy Havrylechko asserts.

Thus, the guest of the program emphasizes that the philosophy of tax policy must be changed, but first and foremost it is necessary to determine the structure of the executive branch of government — whether it will be based on a functional principle or an отраслевой (sector-based) one.

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