How Albania became the country with the highest cost of living

In 2014, Albania was the country with the second lowest cost of basic products in Europe, behind only North Macedonia.

According to official Eurostat data, in the first year of the socialist government in power, the prices of food and non-alcoholic beverages in Albania were 68 percent of the European Union average. This meant that food in Albania cost at least 32 percent cheaper than the average in EU countries.

But after 2014, Albanian citizens have faced a dramatic increase in the cost of basic products, and last year, for the first time, the prices of food and non-alcoholic beverages in Albania exceeded the European Union average.

According to Eurostat, in 2024, food prices in Albania were 100.1 percent of the EU average. This means that Albanian citizens buy basic food more expensively, not only than all their neighbors with similar economies, but also pay more than the Dutch, Spanish, Polish, Czech, Slovak and so on.

When the increase in the cost of living is accompanied by an increase in income to at least the same extent, then the purchasing power of citizens remains unchanged. But in Albania, the opposite has happened.

According to Eurostat data, while food prices in Albania have increased by 32 percentage points relative to the EU average, per capita income has increased by 7 percentage points. So, Albanians are converging on Europe in terms of cost of living, but they are light years away in terms of income levels.

Or to put it more clearly, Albanians pay the same for food as EU countries, but their income is 3 times lower than Europeans. This is poverty.

But why are the prices of basic products rising so rapidly in a country with low incomes and wages, ruining family budgets? There are several reasons for this, and almost all of them are related to governance.

First, the Albanian government is the heaviest tax payer of essential expenses. While almost all wealthy European countries have zero or low-rate differentiated VAT on food, in Albania citizens pay a 20 percent tax to the government on every product they buy, including bread, eggs, dairy, meat, and even water.

However, heavy taxes cannot explain the entire high cost of living products in Albania because even in 2014, the country had the same taxation regime. But in the last decade, the situation has worsened further due to the government's anti-production policies, which have increased the cost for producers.

Albanian businesses pay more for electricity than in almost any other country in Europe, while Albanian farmers buy oil more expensively than almost anyone else in the world. Both of these items, electricity and oil, became more expensive through government decisions in 2014-2015 and later.

Increasing production costs have been only one side of the anti-production policies. The other side is the lack of subsidies. Albanian farmers receive 20 times less subsidies than farmers in neighboring countries, even poorer ones like Kosovo. Consider just one indicator. According to the FAO, the Albanian government provides 3 euros in subsidies per hectare, while Bosnia and Kosovo provide 66 and 69 euros in subsidies per hectare, respectively.

Higher production costs, negligible support from the state. This is the cocktail of anti-production policies of the last decade, the results of which have been dramatic in the collapse of agriculture and domestic production.

According to INSTAT itself, in just 6 years the number of cows in Albania was halved. From around 500 thousand heads in 2017, in 2023 the figure dropped to 263 thousand heads, while the decline in the number of small cattle has been even more dramatic.

The almost total destruction of domestic production has left Albanian citizens dependent on imports. Here the economy has another structural problem. It is that of monopolies that control the food market and dictate their high prices.

The high cost of basic living and the almost negligible increase in incomes keep Albanian families stuck in survival expenses. This is why Albania today has the highest percentage of families at risk of poverty.

But the most inexplicable element in this whole situation is the fact that the government that has increased the cost of living for its citizens more than anywhere else in Europe has won 4 consecutive mandates. This is where economics and rationality stop./ Kapitali.al