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, according to Romania Journal.
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.
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