Financial Times: Romania threatened by stagflation

Stagflation, reflected in a stagnation of the economic activity and continuation of an inflationist process is being felt in Europe including Romania, Stefan Wagstyl Financial Times editor for emerging markets writes in his blog,beyondbrics. He notes that the annual inflation increased in March at 8% while the economy is struggling to grow after two years of recession.

An increase in consumption prices was determined by an increase of food product prices especially for fruits and vegetables and the advance of prices in fuel. The Financial Times editor writes that while the whole world is vulnerable to the increase of raw material prices, Romania is more exposed than any other EU country because food represents a higher weight in the consumption prices basket of 33% compared to 17% in Bulgaria.

Economists expect inflation rate not to drop as to fit the central bank estimate for the end of the year and estimates include a 6% rate for this year. Wagstyl considers that 2012 will not have a good inflation rate either as Bucharest authorities committed to the IMF and EU to cut heating subsidies. This measure will increase inflation by one percentage point in the year it will be implemented. In the end, the editor writes that Romania deserves some appreciation for stabilizing the economy after the crisis with tough austerity measures but notes that stabilization is incomplete without a control of inflation rate.