Government gains another low-inflation month

The monthly inflation rate maintained its decreasing trend in July, amounting to 1.3 percent, a level matching previous estimates by the Government. The inflation rate stood at 16.3% for the first seven months of the year, while the average level during this interval reached 2.2 percent.

July was the second month in a row when the domestic currency depreciation exceeded the inflation rate, after the authorities said they targeted the exact opposite. This goes to show that the exchange rate is beginning to serve as means to cut imports and, implicitly, the trade deficit.

However, statistics for July took into account only a 10% increase in the electric power price. July may thus mark this year’s record low, since August will feel the true influence of the price increases (15% for power and 50% for heat).

Annualised inflation for July 2001-July 2000 went down to 31.8 percent, which makes the 30% target attainable. However, it will be rather difficult to block out the effects triggered by the freezing of energy prices in the first half of the year, therefore the Government might be tempted to push them back to next year, in order to attain its target.

The Government is gaining another low-inflation month, therefore the inflation rate is not likely to climb too high by the end of the year, although the energy prices will go up, says financial analyst Daniel Marinescu.

“The perverse effects of this policy will emerge soon and someone will have to pay the difference as compared to the real cost of energy,” Marinescu maintains.

Prices of products for the population kept going up, while industry benefited from frozen energy tariffs, on a competition-free market due to postponed restructuring of the energy sector.

“The figures are looking good now, showing that inflation may be confined within the targeted limits,” says financial analyst Aurelian Dochia.

However, he feels that there are plenty of bad omens that could affect the situation in the second half of the year. “The effects of energy prices, repressed in the first half, and of the very high trade balance deficit give us serious reasons for concern,” Aurelian Dochia maintains.

In his opinion, the Government could “dilute” the respective effects by pushing things to next year, in order to attain its inflation target in December. “Such a balloon is bound to pop eventually,” Dochia adds.

The highest price increases in July were posted by electrical power (10 percent), radio and TV subscriptions (20.2 percent), and hotel accommodation (5.4 percent). Moreover, increases were registered by railroad tariffs (4 percent) and urban transportation (3.5 percent).

In the foodstuff category, the highest price increases were posted by meridional fruit (11 percent), pork (5.9 percent), eggs (5.4 percent), beef (4.7 percent), beer (3.4 percent) and alcohol (2.2 percent).