The National Bank of Romania (BNR) expects higher inflation at the end of this year and at the beginning of next year. BNR has thus revised the inflation forecast for the end of 2024 from 4% to 4.9% and from 3.4% to 3.5% the forecast for the end of next year. In the short term, inflation would rise as a result of higher food prices.
Governor Mugur Isărescu warned over the fact that the new forecast does not include the imminent fiscal-budgetary correction measures to be taken from next year, which could also affect inflation dynamics.
“We know that a fiscal-budgetary correction will follow, an adjustment in the fiscal-budgetary field that will also lead to an external adjustment. Both deficits are around 8% (…) We don’t have clear data on how it will be done, this forecast is based on the data we have now, depending on the measures, inflation could be higher or smaller“, the central bank governor pointed out, stressing that as long as you have a public deficit higher than economic growth, the public debt increases. “With an 8% external deficit, there is no way we can live in the coming period without strong economic and financial tensions, which also affect the social and political levels“, Isărescu considers.
He further argued that inflation is being pushed up “primarily because of the drought and the upward trend in wages.” “The adverse weather conditions were all over Europe, but in the case of Romania they were more severe. Deficient supply was quickly reflected in the price of vegetables and fruits in the third quarter,” BNR governor explained.
The governor emphasized, however, that the price increases made by commercial operators also include pressure from other types of costs, mainly from labor costs, and that this is “a theme that concerns us”.
Isărescu added that if the wage hikes are not correlated with productivity increases, then they lead to current account deficits and inflation. “The current account doesn’t look good at all. The dynamism of domestic demand led to an increase in imports. The records are clear, they are included in any economics textbook”.
On the other hand, wage growth fueled both consumption growth and consumer credit growth. “Consumer loans are correlated with income growth. Because otherwise we have no way to explain these developments at high interest rates of consumer credit. Lively increases in consumer credit,” said Isărescu.
The governor also stated that the GDP deviation, “the one we usually control with monetary policy”, has narrowed, against the backdrop of the economic slowdown.
The BNR’s monetary policy became more restrictive, after the inflation rate decreased in recent months, from 5.4% in July to 4.6% in September, with the governor claiming that the BNR’s policy was countercyclical, while that “fiscal policy was sufficiently expansive”.
Isărescu also highlighed that the BNR will reduce the key interest rate, now at 6.5%, “when inflation will go down in a sustainable manner”. “Certain fiscal measures that would be taken at the beginning of the year can lead to higher prices. How about reducing the interest rate now so that prices immediately go up? The VAT increase has an inflationary impact, it goes into prices immediately”, the governor said regarding the potential VAT increase.
DONATE: Support our work
In an ever changing and challenging world, the media is constantly struggling to resist. Romania Journal makes no exception. We’ve been informing you, our readers, for almost 10 years, as extensively as we can, but, as we reject any state funding and private advertising is scarce, we need your help to keep on going.So, if you enjoy our work, you can contribute to endorse the Romania Journal team. Any amount is welcome, no strings attached. Choose to join with one of the following options:
Donate with PayPal
Donate by Bank Wire
Black Zonure SRLUniCredit Bank. Swift: BACXROBU
RON: RO84 BACX 0000 0022 3589 1000
EURO: RO57 BACX 0000 0022 3589 1001
USD: RO30 BACX 0000 0022 3589 1002
Uncontrolled Inflation, rooted in human greed, is what society gets when you trust a free and unregulated capitalism.