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May 20, 2022

Romania threatened by stagflation

Romania is not on the right economic path, as stagflation may worsen the situation, according with HotNews.ro, quoting Financial Times. The National Statistics Institute announced, on Monday, a jump in annual inflation to 8 per cent in an economy which was in recession last year and will struggle to pull out of negative territory in 2011.

“The country’s challenges lack the immediacy of the debt crises facing Greece, Ireland and Portugal, but it faces deep-rooted difficulties which won’t fade in six or 12 months. And as a European Union (EU) member, it can hardly be ignored in Brussels,” the article reads.
While the whole world is vulnerable to global commodity price hikes, Romania is particularly exposed among EU members because food accounts for an especially high percentage of the consumer price basket (33 per cent, compared with just 17 per cent in neighbouring Bulgaria).

Economists expect the inflation rate to moderate once this summer’s harvest is collected (assuming it is not another poor year on the farm) and last summer’s VAT hike is no longer in the numbers. But inflation won’t drop nearly enough to meet the central bank’s (recently increased) year-end targets of 3 per cent. Economists have published forecasts as high as 6 per cent. And next year won’t necessarily be much better: under the terms of its support agreement with the International Monetary Fund and the EU, Bucharest has pledged to cut heating fuel subsidies which are among the EU’s highest. The move will boost inflation by around 1 percentage point in the year that it’s implemented.

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