We all feel in our own pockets the
growth of prices in supermarkets, especially in food prices. Official documents
confirm that because of the draught’s effects on foodstuff price, Romania NIS Romania
In a market economy, goods and
services price may change anytime. Some of them increase, while other decrease.
We speak about inflation when a generalized increase of goods and services, not
only an increase of specific articles, is registered. As a consequence, with
one euro people can buy less, respectively, one euro values less than before.
Some price variations are more important than others. To the average growth of
the prices calculation, it is allocated a higher share to expensive products-
like electricity- unlike cheaper products – like sugar or postal stamps.
Different people buy different
products. Each household has its own consume habits: some of them own an
automobile and consume meet, while others prefer exclusively public transport
or vegetarian food. Average consumption of the households as a whole determine
the share that different products and services have in the inflation measure.
Some of the goods and services that are taken into
account in the household consumption are daily articles (like food, newspapers,
gas), long-term goods (like clothes, personal computers and washing machines),
services (like insurances, house renting or hair dresser).
All goods and services consumed in
households over the year are represented in a “basket” of items. Every product’s
price in this “basket” may vary from
year to year. Annual rate of inflation is given by the whole basket price in a
certain month, compared to his price in the same month of the last year.
First of all, it’s good to know
that inflation’s problem is not a Romanian one. It’s a global one. According to
International Monetary Fund ( IMF ) and World Bank, this year’s draught will
determine a global food price increase . For the moment, there is no signs to
predict a foodstuff crisis, like the one in 2008, but we need to be
cautious.
Beside prices increase, there are
some other consequences of a high inflation rate. Volatile and unpredictable
rates of inflation may harden long-term plans of companies and consumers. This way, are
discouraged the investments and economies and definitely we can talk about
market inefficiency. Another consequence
of a high inflation or of an anticipation, is that people are less willing to
save money for the future. The reason
could be that inflation may reduce, in time, the purchasing power of the
economies. In this case, people that probably want to save money for future
will rather spend this money in present.
A high inflation rate may lead to a
quicker increase of a company costs considering the productivity profits, which
makes the entrepreneurs to be more reticent about the risks, less willing to
invest in the future. This thing has a huge impact on economic growth and on
employment.
Many issues, no?
The question is what power has a
national bank to control the effects of this kind of “weather” fact? Romanian National Bank remind us the factors
that affected in the past the achieving of the purposed target. Because of
unpredictable facts, like weather evolution, or because of our economy
structure and perhaps because of the asymmetric way in which our economy
responds to adverse shocks, annual rate of inflation had and may have
deviations from the purposed target.
As an example, Romanian National
Bank changed 1.9% increase in this year’s target, from 3.2% to 5.1%, in the
same time increasing the annual rate of inflation for 2013, from 3% to 3.5%. “
In September 2012, food prices went up with 2.3% comparing to the previous
month., and serviced prices with 0.4% ( National Institute of Statistics).
Within food, the biggest increase in price is being the one for potatoes (
27.4% ), groceries ( 9.85 % ), fruits ( 5.04%) and eggs ( 7.23% ), comparing to
the previous month. In what concerns nonfood prices, the biggest increase in
price is being for gas ( 2.83%) and for fuel (1.57%).
The inflation in the Euro Zone ,
recorded in September, was of 2.6% (annual rate) , the same level of that of
August, according to Eurostat. In
monthly terms, the rate of inflation was of 0.7% in September 2012. In the EU, the
annual rate of inflation was 2.7% in September, according to EU bureau of
statistics. The lowest annual inflation rates were noticed in Greece ( 0.3% ), Sweden
(1%) and Latvia (1.9%), and
the highest were in Hungary
(6.4%), Romania (5.4%) and Estonia
The main components of the
highest monthly rates were clothing (14%), household equipment and education (0.5%
each ), whilst the lowest monthly rates were noticed in leisure domains,
culture, hotels and restaurants ( -1%) and communications (-0.5%)
The high, volatile rates of inflation are undermining
the value of people’s revenue and can be of harm for the economic long term
growth and for creating jobs. The low and stable rates of inflation are of
common interest. That’s why inflation has to be handled. How is that possible? The
2 main ways of handling inflation are monetary and fiscal policies. Both
policies influence the amount of money available in economy. Increasing the
amount of money available in economy, people will tend to spend more, which
will lead to an increase in the demand of goods and services. If the supply
can’t keep up with the growth of the demand, the demand itself can generate an
increase in the rate of inflation. Cutting down the availability of the
currency has the opposite effect.
The basic rate of inflation has decreased considerably
from 2000, as a result of the monetary policy, whilst the remaining component (administered
prices, food prices, etc) remained relatively constant. And if we take into account the fact that in
the last years the share in the PPI basket (Power Purchasing Index) of the alimentary
products was about 40% (almost double comparing to its value in the Euro Zone),
then we can say that, indeed, the inflation in Romania
Alexandra Iftene
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