Lucky year for inflation cut

Romania concluded 2002 with 17.8% in December to December inflation, following a 12.5% decrease compared with 2001.
The authorities had set 22% as inflationary target early in the year, although the inflation rate had only gone down to 30.3% in the previous year.
Romania is therefore registering the lowest inflationary rate of the past thirteen years, but remains the only European Union applicant having failed to contain inflation below 10%, which goal is supposed to be attained in 2004.
How much did the increased economic efficiency, the favourable international circumstances and the inflation computation methodology contribute to this trend?
“If leaving the help from the international deflationary environment out, we would still have reached 22%. We were lucky things worked out in our favour. The problem is that we have to attain the 13%-14% target this year, luck or no luck,” said Valentin Lazea, National Bank of Romania (NBR) chief economist.
Lazea added the chances of further international assistance for cutting inflation in 2003 were much dimmer, considering the increase in the oil price and the euro’s powerful ascent.
“Under the circumstances, the inflation reduction is left to the concerted domestic effort,” Lazea says.
The average monthly inflation rate amounted to 1.4% in 2002, compared with 2.2% in 2001 and 2.9% in 2000.
“The ROL/USD exchange rate was used as an anti-inflationary lever for the second year in a row, which approach we could not have taken had the euro not gained so much ground. This has helped the NBR contain the USD/ROL exchange rate without damaging the foreign balance,” Radu Craciun, senior analyst with ABN Amro Bank Romania says. Craciun feels the methodological computational approach of inflation has also contributed to getting a lower than anticipated figure.
“We shouldn’t overlook the economic productivity gain, although it was not the decisive factor in the inflation cut,” Craciun added.