A persistently high government deficit is the main factor fuelling inflation in Romania, while the rise in fuel prices and the depreciation of the local currency, the leu (RON), had an additional effect on the increase in prices, CFA Romania Chairman Adrian Codirlas told AGERPRES on Friday.
In his opinion, narrowing the deficit by cutting spending is the main solution for moderating inflation.
"It was to be anticipated that inflation would remain in double digits, it even increased a little. What are the factors that generate it? First of all, a structural factor: the government deficit. A persistently high deficit leads us to inflation, because it means, in fact, printing more money. When the government issues a bond, it basically prints money, which generates inflation. On top of this structural factor, fuel prices were added, especially the second-round effects of fuel price increases, and the effects of the depreciation of the leu. These are transitory factors, but we have that structural factor, the government deficit, which is, in the long run, a generator of inflation," said Codirlas.
According to him, the government should take measures to narrow the deficit, "by cutting spending, not through other taxes, because taxes also go into prices."
"For any tax, regardless of who levies, it is the consumer that ends up paying it. Therefore, one solution would be to narrow the government deficit by cutting spending. If there are no additional shocks, inflation should peak soon, and enter a downward trend in the second part of the year. It is possible to drop below 10% in August-September, when the effect of the VAT increase disappears," said the chairman of CFA Romania.
In his opinion, shocks can come either from within, due to Romania's economic parameters, or from outside, in the context of the ongoing war, which can lead to high volatility on the oil market.
"Both internal and external shocks remain possible," according to Codirlas.
Annual inflation rate in Romania rose to 10.85% in May, from 10.71% in April, as services rose by 13.53%, non-food goods by 12.54% and food goods by 6.78%, according to data published on Friday by the National Institute of Statistics (INS).
