Price controls and inflation in Belarus: What official data miss
Price regulation has become one of the defining features of Belarus’ economic policy since late 2022. What started as an emergency response to trade disruptions has gradually turned into a permanent regulatory regime that shapes the behaviour of firms, consumers, and state bodies. Three years after its introduction, the system continues to suppress market signals, deepen structural distortions, and place growing financial pressure on producers and retailers. The following newsletter examines the origins of the regime and its consequences.
Price regulation in Belarus and Resolution No. 713
In October 2022, Belarus introduced a comprehensive price-control framework through Resolution No. 713 “On the system of price regulation.” The measure significantly expanded the state’s role in consumer price formation. Its key features include:
- Mandatory pre-approval of price changes for a wide set of goods and services, initially covering more than 370 types of goods from food items to cloths and consumable electronics
- Limits on margins, markups, and cost passthroughs for producers and retailers
- Episodic price freezes and temporary price caps introduced at short notice.
Initially, the authorities described these controls as a temporary response needed to contain inflation during a period of rapid adjustment to Russian full-scale invasion into Ukraine and related sanctions and market disruptions. However, three years later, the system remains fully in place and has become a long-term administrative mechanism that continues to distort markets.
The implementation of Resolution 713 turned out to be far more complicated than originally anticipated. What began as a short set of rules soon grew into a complex and extensive regulatory framework accompanied by numerous clarifications and amendments. Even in this expanded form, the resolution leaves considerable room for interpretation, which has forced officials to provide frequent explanations.
During the initial phase, the Minister of Trade was holding press conferences almost every week to clarify how the rules should be applied. Some questions bordered on the absurd. For example, at which point chopped cucumbers and tomatoes, both regulated items, become a salad, that is not regulated. In practice, the system was enforced less through clear legal rules and more through the threat of administrative and criminal charges. Many entrepreneurs were targeted for alleged violations of the “spirit” rather than the “letter” of the regulation, which resulted in widespread caution and pricing paralysis across the private sector.
Estimating true inflation without price controls
To assess the extent to which administrative regulation depresses inflation, we use the Quarterly Projection Model (QPM) applied in the Inflation Bulletins by the Belarusian Economic Research and Outreach Center (BEROC). In the model, observed inflation is decomposed into contributions from domestic demand and wages, exchange-rate changes, external inflation, inflation expectations, and a residual component reflecting the effect of price regulation. When controls bind, this residual becomes negative. To obtain the counterfactual (true) consumer price index (CPI) without price controls, we add back this negative contribution and allow regulated categories to evolve at market-driven rates.
CPI: With and Without Price Controls
In September 2025, official inflation was 7.1% yoy. Without price controls, according to the QPM estimate, inflation would have been 10.5%. The gap has remained consistently positive since the third quarter of 2022. Periods of tighter regulation, especially in 2023 and 2024, are associated with larger divergences of more than 7 percentage points.
Even after the partial relaxation of controls in April 2025, the gap remains between 3 and 4 percentage points. This indicates that administrative influence on price formation remains substantial and continues to mute the CPI response to underlying economic conditions.
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Implications
Administrative price controls create a significant inflationary overhang. By suppressing prices in regulated categories, the system postpones the inflation that would otherwise occur, and this accumulated pressure will inevitably materialise once controls are relaxed or removed. The effect is reinforced by the current macroeconomic environment. With the output gap exceeding 2%, the economy is overheated, and underlying cost pressures are strong. However, because prices in many categories cannot adjust freely, the official CPI does not fully reflect the intensity of domestic demand or the rapid growth of unit labour costs.
Real unit labour costs, defined as labour costs per unit of economic output adjusted for inflation, have risen to a record 53%, compared to a historical average of about 47.5%. Real wages have increased by 37% relative to their 2022 average. Under normal circumstances, such a mismatch between productivity growth and wage growth would result in higher consumer prices.
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Under the administrative price control system, firms cannot pass additional labour costs to consumers and are forced to absorb the losses. The combination of low measured inflation and rapid real wage growth gives households the impression of strong economic performance, which in turn fuels domestic demand. Since wages grow faster than output, consumers naturally shift toward imported goods, adding pressure on the current account and subsequently on inflation. The financial strain on regulated sectors continues to deepen. Firms that cannot raise prices while input costs rise at high rates face serious financial difficulties. This is especially visible in retail and agriculture. Retail has emerged as the sector with the highest bankruptcy rates in recent years, which suggests that the eventual liberalisation of prices will likely take place in a market that has already become less competitive and more consolidated. Agriculture faces similar problems. Distorted price incentives contribute to periodic shortages and reduce incentives for investment and efficiency improvements, which helps explain episodes such as the vegetable scarcity in spring 2025 and even temporary shortages of Belarus’s key staple, potatoes.
Conclusion
Taken together, these factors show that Resolution No. 713 suppresses inflation at the cost of long-term economic efficiency. It weakens sectoral performance, erodes competition, and increases the size of the eventual price correction. The longer the system remains in place, the more pronounced the adjustment will be when controls are finally eased.
Some authorities have signalled awareness of these risks and even attempted to relax the price-control regime. On 10 March 2025, Alexander Turchin was appointed Prime Minister of Belarus. In his first statements, Turchin suggested that the administrative price-control system could be eliminated, reflecting growing concern within parts of the government over distortions caused by regulation. However, Alexander Lukashenko opposed this move, and, as a result, the authorities introduced only a modest loosening — removing some items from the control list. However, as of now, there is no public roadmap for further deregulation, and the overall system remains largely intact.
Dr Lev Lvovskiy is Academic director at BEROC. This text reflects the opinion of the author and does not necessarily represent the views of the German Economic Team.
