Energy shock drives food price pressures in North Macedonia

The global oil shock triggered by escalating tensions in the Middle East, including the US strikes on Iran, is raising fears of a new inflationary wave — and in North Macedonia, the early signs are already visible, though not always in expected ways.

While macroeconomic indicators remain broadly stable for now, policymakers, businesses and households are bracing for potential spillover effects as higher energy costs begin to filter through the economy.

“Life has become uncertain, and no one knows what’s coming next. The situation in Iran and rising fuel prices are worrying people. Living costs are already high, and another wave of inflation could make things even harder,” Marko from Skopje commented on the situation.

North Macedonia’s authorities have already taken steps to cushion the impact of rising fuel prices, which are widely seen as a key driver of inflation.

Prime Minister Hristijan Mickoski said on April 5 that reduced fuel taxes that were introduced in March would be extended and additional relief measures implemented, warning that tensions in the Middle East are already affecting the domestic economy.

Following an emergency session, the government decided to extend the reduced VAT rate on fuel from 18% to 10% beyond its planned April expiry, while also cutting excise duties by MKD4 per litre for diesel and MKD2 for petrol.

According to Mickoski, the measures are designed to prevent prices from surging further — potentially above MKD100 per litre for diesel — and to shield households and businesses. In addition, Greece-owned supplier OKTA agreed to extend discounts after talks with the government, securing further price reductions of MKD3 per litre for diesel and MKD2 for petrol.

The government argues that stabilising fuel prices is essential to protecting household budgets and limiting cost pressures in transport, food production and services.

Fuel prices in North Macedonia have already risen sharply. Between February and March, diesel increased by roughly MKD26–27 to around MKD95  — a jump of nearly 40% — while 95-octane petrol rose by about MKD13–14 to around MKD86, or roughly 20%.

Diesel has seen the steepest rise, with the largest weekly increase in March among the most significant in recent years, reinforcing concerns about broader inflationary pressures.

At the same time, the Ministry of Energy, Mining and Mineral Resources is reviewing recommendations from the International Energy Agency, including such as promoting public transport use and introducing an “odd-even” driving system, DW reported recently.

Some of these proposals echo past crisis responses, including fuel rationing measures used during the 1970s oil shocks and the 1990s regional embargo period. However, officials acknowledge that implementation may be challenging due to limited infrastructure and legal constraints, particularly in the public sector.

Inflation outlook stable, but risks rising

So far, the macroeconomic picture remains relatively stable. According to the National Bank, annual inflation slowed to 2.9% in February, in line with projections.

However, the latest data from the state statistical office, released on April 7, showed that annual inflation accelerated to 4.9% in March 2026, driven in part by a 7.5% rise in food and non-alcoholic beverage prices.

The outlook is becoming increasingly uncertain. Rising oil prices and disruptions in energy supply have already led to higher import price expectations.

Economists caution that much will depend on the duration of the crisis. Academician Abdulmenaf Bexheti told Vecer that a short conflict may have limited impact, but a prolonged one could trigger broader inflationary pressures.

“If the war lasts for several weeks, the impact may be contained. Otherwise, inflation could spread more deeply through the economy,” he said, warning of potential risks to macroeconomic stability.

North Macedonia’s economic growth is projected to slow to 3.1% in 2026, while inflation is expected to exceed 4%, driven by rising global energy prices, the International Monetary Fund said on April 1.

The outlook reflects the impact of continued tensions in the Middle East, which are likely to weigh on growth and fuel renewed inflationary pressures.

Milk oversupply meets rising costs

At the micro level, however, the effects of the global shock are already producing unexpected outcomes.

While higher fuel costs are pushing up the prices of staple foods such as bread, fruits and vegetables, milk prices are paradoxically falling, exposing deeper imbalances in supply chains and agricultural markets.

At first glance, the situation appears contradictory. In Skopje markets, a litre of imported milk can be found for as little as MKD40, while domestic producers such as Bitolska Mlekara report production costs that push prices above MKD70.

bne IntelliNews learned from industry sources that the problem is not weak demand, but oversupply. Large stocks of milk, combined with increased imports — particularly from Bosnia — are driving prices down. For producers, this creates a squeeze: falling revenues on one side and rising costs on the other.

Transport has become significantly more expensive due to rising fuel prices, while storage pressures are mounting as unsold inventories accumulate. For dairies, operating under such conditions is becoming increasingly difficult.

"We have a large quantity of milk we cannot sell because of the influx of cheap imported milk, especially from Bosnia," a source from the largest diary Bitolska Mlekara said. "Now, high fuel costs add to the problem, making it impossible to sell our milk at a fair price."

This imbalance reflects a broader European trend.

A European surplus

In Slovenia and across the EU, milk markets are facing a glut. According to industry estimates, Europe is producing around 500mn litres more milk per month than in the same period last year.

Farmers are already feeling the impact. Matej Brezovnik, a dairy farmer supplying Ljubljanske mlekarne, said purchase prices have fallen by around 30% since last summer, even as production costs surge, RTV SLO reported recently.

Feed, fertilisers and energy inputs have risen sharply, in some cases by 40–45%. The pressure is structural: global demand for crops such as corn and oilseeds is being driven not only by food markets but also by energy production, particularly biodiesel and ethanol.

Ben Moljk of the Agricultural Institute of Slovenia notes Slovenian dairies are currently purchasing milk at about 40–41 cents per litre, with further price declines expected.

Business sentiment cautious but stable

Despite mounting pressures, the broader business environment has not yet deteriorated significantly. Companies remain cautious, with many adopting a wait-and-see approach as uncertainty persists.

Viktor Mizo, president of the Council of Foreign Investors, said at the end of March that the demand remains broadly stable, with only slight week-to-week fluctuations.

“A sharp drop has not yet materialised, as uncertainty persists and companies are waiting to see how the situation develops,” he said, describing conditions as fluid.

Mizo warned that the crisis could hit multiple sectors, not only through higher fuel costs but also due to potential shortages of key inputs such as kerosene and aluminium.

Higher fuel costs, supply chain disruptions and potential shortages of key inputs remain key risks if the crisis continues. For now, however, North Macedonia’s economy appears to be holding steady — though its trajectory will largely depend on external developments beyond its control.