From Walmart to Skopje – Same problems, different addresses

From Walmart to Skopje – Same problems, different addresses

There’s a video making rounds on social media that perfectly captures the essence of inflation. In it, a person revisits their Walmart purchase history from 2021. Back then, they bought their usual groceries for about $100. Fast forward to 2024, and the exact same basket of goods costs $400. It’s the same items—nothing fancy or extra—but the price tag has quadrupled.

You might have noticed that everything is more expensive, just like this guy in the video. Whether we’re buying groceries, paying bills, or filling up our gas tanks, we can’t run away from price increases. In a nutshell, that is inflation in action: when prices rise over time, your money buys less; eroding its purchasing power.

We should understand that inflation is a normal part of any economy, but when it spirals out of control, it can disrupt lives, economies, and even governments. Let’s break down why it happens, and what we can do about it.

Video link for context: Watch here

Inflation 101

If you open any basic economics textbook, then you’ll find that inflation is driven by two forces: supply and demand.

Demand-Pull Inflation

This occurs then demand for goods and services outstrips supply. Think of a Black Friday sale, too many people chasing too few discounted products. Businesses respond by raising prices. During the COVID-19 pandemic, governments issued stimulus checks, increasing household spending. However, supply chains were disrupted, and factories struggled to keep up. The result? Prices surged across various sectors, from electronics to home furnishings.

Cost-Push Inflation

This happens when production costs (wages, materials, energy) increase, and businesses pass those costs onto consumers. For example, the war in Ukraine caused a spike in global energy prices. Since energy is a key input in production and transportation, costs rose across the board—from electricity bills to food prices.

The Myth About “Printing Too Much Money”

Around the time when inflation started peaking a common ‘myth’ started circling the media – “Inflation happens because governments print too much money.” While that’s partially true in extreme cases, for most modern economies, it’s not that simple. Let’s clear up this common misunderstanding.

Where Does Money Come From?

When central banks “print money,” they don’t actually hand out stacks of cash to people. What they do is add to bank reserves, making it easier for banks to lend money to businesses and individuals. This can stimulate the economy, but it doesn’t automatically lead to inflation.

So why more “banking reserves” do not equal inflation?

If people or businesses don’t borrow and spend that money, it just sits there (in the bank). The increased reserves don’t enter the broader economy.
Even if we borrow, whether inflation happens depends on other factors like supply and demand (availability of goods and services), so as long as there’s no disequilibrium between demand and supply.

Now that we understand the basic mechanisms of inflation (supply and demand) let’s look at the case of Macedonia and its impact on households.

Inflation and Macedonian Households

Figure 1 depicts the average inflation rates around the world in 2024. It is evident that in most countries, inflation falls within the 4.5% to 6% range (red), indicating a slowdown in inflationary pressures compared to previous years.

This decline can largely be attributed to three key factors: the gradual resolution of global supply chain bottlenecks, tighter monetary policies from central banks, and the stabilization of energy markets following the initial economic shocks caused by the war in Ukraine.

At first glance, this seems like good news. Inflation has cooled down from the extreme highs of previous years. But does that mean prices have returned to pre-2020 levels? Not quite. A lower inflation rate doesn’t mean prices have fallen, it just means they’re rising at a slower pace.

Figure 1. Average inflation rates around the world in 2024

Source: World Economic Outlook, 2025

But what does this mean for a small, import-dependent economy like Macedonia? The answer lies in imported inflation—when rising global prices filter down to local markets. For reference, Figure 2 presents the increase in prices from 2020 to 2024, peaking at 31%, with food and non-alcoholic beverages surging by 41%, housing and utilities by 30%, and restaurant prices by a staggering 46%.

Figure 2. Total cumulative inflation 2020-2024, by category

Source: State Statistical Office

But here’s the crucial question: Has this inflation affected all households equally?

Well, not really. Inflation doesn’t affect all households equally, and the key reason lies in how different income groups allocate their spending. Lower-income households dedicate a much larger share of their budget to necessities—especially food—while wealthier households have more flexibility in their expenditures.

As Figure 3 illustrates, the poorest 10% of households spend 65.7% of their total budget on food, whereas the richest 10% allocate only 19.7%, nearly three times less. This structural difference means that when food prices surge, lower-income households feel the impact far more acutely than their wealthier counterparts.

Figure 3 Food expenditure among the poorest 10% and the richest 10% of households

To quantify this disparity, we can estimate a personalized inflation rate for both the poorest and richest households. A simple way to do this is by weighting inflation rates according to each group’s spending patterns.

Inflation for a decile = Total inflation per category x wi / πi, where

wi is the share of spending on category (e.g., food) for the given decile
πi is the average spending for all deciles in that category (e.g. food)

Applying this method, we find a stark contrast:

For the richest 10%, the effective total food inflation was only 23%

For the poorest 10%, total food inflation soared to 76% — more than three times higher.

Figure 4. Inflation for food by deciles

While headline inflation figures may suggest a general trend, the lived experience of inflation is vastly different across income groups. The poorest households, whose budgets are often stretched to cover essentials tend to absorb the hardest shocks. Meanwhile, wealthier households, with a greater share of their spending directed toward discretionary items (such as recreation, clothing and luxury goods, where inflation is generally lower), experience a much milder impact.

This begs the questions: If inflation disproportionately affects lower-income households, what role do market structures and pricing mechanisms play in exacerbating the issue?

Trade Margins and Price Freezes

While supply and demand remain the primary drivers of inflation, increasing attention has been placed on the role of retail trade margins. Recent discussions on trade margins have gained attention due to potential price arrangements - largely forbidden - among major retail chains. Concerns about oligopolistic practices have surfaced in the media, raising questions about whether such arrangements contribute to inflationary pressures by distorting competition and sustaining artificially high prices. Although official data on trade margins in Macedonia is currently unavailable, we propose a few theoretical aspects.

The Effect of Price Freezes on Margins

Government-imposed price freezes, such as those implemented in Macedonia, can provide short-term relief by margins and prevent businesses from immediately passing higher costs onto consumers. This temporary measure helps slow inflationary pressures, as businesses absorb some of the cost burden. However, prolonged intervention in price-setting mechanisms can lead to unintended consequences, such as the creation of artificial supply shortages or "synthetic" deficits. If businesses anticipate prolonged restrictions, they may adjust production or distribution in ways that disrupt supply chains. Therefore, price controls should be complemented by structural reforms that foster market competition and improve supply chain resilience.

Inflation Expectations and Market Dynamics

Inflation is not solely driven by immediate price-setting but is also shaped by consumer and business expectations. If people expect continuous price increases, their behaviors can reinforce inflationary cycles:

Workers may demand higher wages to maintain their purchasing power, as we observe happening in Macedonia
Businesses may preemptively raise prices in anticipation of future cost increases, as we observe happening in Macedonia
Consumers may increase spending to ‘hedge’ (shield) against future price increases which fuels demand and increases prices, as we observed happening in Macedonia during the pandemic.

Long-term structural resolutions

In Macedonia, some market sectors operate under oligopolistic structures, where a few dominant firms influence pricing through coordination or tacit agreements. Just this week, the Commission for Protection of Competition (CPC) launched infringement proceedings against four major supermarket chains and the Chamber of Commerce for suspected price-fixing. In such cases, price freezes are not a long-term solution but rather a temporary tool to address inflationary spikes. As the Comissions investigation unfolds it raises critical questions about the effectiveness of regulatory enforcement and whether existing policies are sufficient to curb market distortions. The real challenge lies in implementing broader structural changes, such as increasing productivity, fostering competition, and strengthening regulatory oversight to prevent future market manipulations.

The recent measures on price freezes by the Macedonian government are analyzed here.

Data visualization for this post

I’ve put together an interesting data visualization for this release

Share of electric car sales 2010-2023

What have I been reading lately?

Here are some interesting articles I read recently:

Methodology

Suggested methodology: Synthetic Control Methods

This is post number 002. Any questions or suggestions related to calculations or the content of this blog can be submitted to theecondigest@gmail.com.

Author: Stefan Tanevski

The Econ Digest

Leave a Reply Cancel reply