Inflation remains Romania’s main economic problem and the main factor keeping the economy in a stagflation zone, characterized by economic growth close to zero and persistent price increases, economic consultant Adrian Negrescu said, according to Agerpres.
According to him, energy, gas and fuels are among the main sources of inflationary pressures.
“Data from the National Institute of Statistics confirms that inflation remains the most serious disease that Romania is going through, a disease with multiple negative effects in weakening the economy, in decreasing consumption, the main driver of business, and in an economic stagnation that is felt more and more. In other words, inflation is the main reason why we are currently in this stagflation zone, with economic growth close to zero and with some price increases that are coming to further deteriorate the investment climate in our country,” said Negrescu.
He emphasized that statistics demonstrate that much of the inflation that we feel strongly in Romania, with an average over four times higher than the European one, comes mainly from the cost of energy, gas and fuel – “three of the essential elements of consumption, three of the resources that keep the Romanian economy alive.”
“In these areas, we are witnessing spectacular price increases, of over 30% for fuels, over 50% for energy and an expected increase in the price of gas, which we are not yet feeling strongly, because the effects on the economy, with the liberalization of the gas market, will only be felt from the perspective of companies from June. From my point of view, all of this really demonstrates that, if we do not adhere to these fundamental conditions related to economic activity, unfortunately we will remain prisoners of these price increases which, in addition to the decrease in purchasing power, in addition to the poverty into which the population is deepening, generate, from my point of view, a significant decrease in economic competitiveness”, claims the economic consultant.
In his opinion, Romanian companies, faced with very high costs for energy, gas and everything that means utilities, find it “almost impossible to compete on equal terms or to have an advantage over imports”.
According to him, the state “should look at the causes of inflation, and politicians should also talk about this.”
“I think it is necessary for the new government to come up with concrete things in this area of inflation, beyond the expectation of a moderation of the inflationary trend in the second half of the year as a result of the base effect. Solutions must be found, at least impact studies must be carried out to demonstrate whether it is viable, for example, a decrease in VAT, mainly on basic food products, on energy and gas, on utilities, mainly because we are heading towards the winter season. Winter is coming, and energy, gas, and maintenance bills will explode, and the population will be even more vulnerable than in the season we have just overcome,” Negrescu added.
He believes that there is a need for a reduction in taxes on basic food products and utilities, based on an impact study that demonstrates where we can attract more money from, in order to offer this facility, and, on the other hand, measures to support purchasing power.
The increase in the value of meal vouchers must be brought back to the attention of the governors, he argues.
“I think it is absolutely necessary to include a tax cut, especially for young families just starting out, in the government’s plan, and in general, to the extent that we have this possibility from a financial point of view, to try to identify a decrease in labor taxes, because we have reached an absolutely disarming situation in which more than 60% of the money we earn at the moment we give to the state in the form of taxes and duties, including the VAT and excise duties that we pay. Beyond these estimates, which, of course, must be based on very clear calculations, I think that the first and only solution available to the authorities is to try to do nothing from a fiscal point of view, that is, so that we do not wake up with another increase in excise duties, so that we do not wake up with new taxes and new obstacles placed on the business environment,” the specialist added.
On the other hand, capping the commercial mark-up for all food products would be “a harmful element that would further deepen the crisis in which modern food trade finds itself,” argues Negrescu.
“The good news is that, from the second half of the year, probably from September, inflation will moderate towards 6-7%, considering, first of all, the base effect, even if the authorities do nothing spectacular in this regard. The historic increase in energy prices last year, of 80%, will no longer be taken into account, and last year’s tax increases, especially VAT, which brought inflation to this current level, will no longer be taken into account in the calculation of inflation. From September, inflation will probably moderate and I hope that, at the end of the year, if things go well, the National Bank will also give a signal in the direction of economic recovery by reducing the key interest rate. It would be absurd to have a key interest rate of 6.5% and inflation that drops below this level in November and December,” added the economic consultant.
The annual inflation rate increased 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).