The Reasons Behind Inflation

the reasons behind inflation Romania had the highest annual rate of inflation in the EU in February, 3.87%, according to Eurostat data published last week

Lithuania and Estonia closely followed, with 3.2%. Previously, the Romanian National Institute of Statistics had published that figure, against the backdrop of rising prices for food products, 3.74%, and non-food items, with 6.27%.

 

This rise in inflation and the forecast issued by the National Bank of Romania regarding inflation caused reactions from the political class. The chair of the Budget and Finance Committee in the lower chamber of Parliament, Marius Budai, said last week that the announcements made by the governor of the National Bank regarding inflation caused companies to bring up their prices, and that businesses are influenced by such statements:

 

“From my point of view, as chair of the Budget and Finance Committee, when the governor of the National Bank comes out saying that we will have 4.3% inflation, this can only cause a rise in prices, because everyone, and we talked to private businesses, took it as an alert, and they said: ‘We're not waiting for April, May, or June, we're hiking up prices now.’”

 

However, the Liberals, in the opposition, claim that the responsibility for the rise in the annual rate of inflation lies with the Government and with those who made fiscal policy. Here is the deputy chairman of the Liberal Party, Dan Valceanu, a member of the Budget and Finance Committee:

 

Of course the Government is guilty for this, because the National Bank did not make this fiscal policy. It was not the National Bank deciding salary increases and other expenditures last year. The way in which the market works, the way in which prices are set, is not decided by the National Bank. The National Bank gathers data and offers back to the public data on inflation.”

 

Citrus and fresh fruit are the products that went up in price the most in February 2018 against January; in terms of non-food products, the steepest rise in price was in the case of natural gas, which led to rising electricity and heating prices, leading to the 4.3% rate of inflation in January, according to Adrian Vasilescu, strategy consultant with the National Bank:

 

Fuel, electricity, heating, natural gas. These are the four categories that the state changed prices for in a broad stroke, bringing them up way over the rate of inflation, causing the rise that brought it up to 4.3%. It is clear that the state tricked us, they changed these prices when they shouldn't have, but if they had done it on time, in autumn, and not in January 2018, we would not have this 4.3% rate of inflation. There is absolutely nothing the National Bank, with its tools, can do against prices.”

 

According to a recent barometer run by IRSOP and the National School of Political and Administrative Studies, published by Agerpres, Romanian industrial activity reported a severe drop in January, for the second month in a row. The managers they polled believe that the re-launch of the global economy led to increased demand for raw materials, which in turn led to rising prices for oil and metals, which ultimately brings up production costs. At the same time, companies brought up prices for their products, which led to higher inflation. Moreover, the managers in the poll expect higher orders and production volume, with some of them hoping for increased demand from the state for infrastructure works.

 

In a seminar last week, the head of the Competition Council, Bogdan Chiritoiu, said he believed that the 4% rise in price for foodstuffs in early 2017 is not too high, and that European statistics show that the price for these products in Romania are on an average 60% of such prices in the European Union. According to him, before joining the EU, inflation in Romania was in the double digits, and people were used to food prices going up 10% each year. For the last few years, he said, we became a healthier country, with very low inflation. Prices have gone up, but for years, food prices went up little or not at all.

 

Even if the National Bank adjusted upwards its inflation forecast for this year, to 3.5%, and for 2019 it estimates a rate of inflation of 3.1%, the Ministry of Public Finance seem more optimistic, as they announced that local councils will use as reference a rate of inflation of 1.34%, in order to calculate local taxes for 2019.

(Translated by C. Cotoiu)


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Publicat: 2018-03-20 12:29:00
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