Annual inflation rate in Moldova in the IV quarter of 2021 may exceed the upper limit of the variable corridor of ± 1.5 percentage points from target inflation of 5%, which will negatively affect economic growth in the medium term – the NBM stated.
As noted by the National Bank of Moldova (NBM), in July 2021 the annual inflation rate in Moldova was 3.5%, which is 0.3 percentage points higher than in June 2021. The evolution of inflation was influenced by the increased inflationary pressure, exceeding expectations, on the part of domestic aggregate demand, in terms of recovery of consumption by the population due to an increase in the wage bill, the volume of new loans issued, and remittances. At the same time, the increase in customs revenues associated with an increase in imports of goods, as well as money in circulation, confirms the increased pressure from the demand side. The National Bank points out that, at the same time, increased supply pressure led to an increase in the cost of raw materials, which affected the growth of core inflation and food prices. Thus, building material prices have risen internationally, while economies have revived amid eased COVID-19 restrictive measures, rising cotton prices and rising wood prices around the world. Tuition fees for contract tuition at universities and colleges have increased. At the same time, inflationary pressures in July were also driven by regulated prices in the context of adjusting some administrative fees by the Public Services Agency. Fuel prices in July 2021 had a less significant impact as changes were made to the methodology for setting fuel prices. At the same time, prices remained higher than in the same period last year (17.1%). As noted by the NBM, in these conditions the inflationary process will be long and will not be temporary. In the subsequent period, more pronounced inflationary pressure from aggregate domestic and external demand amid stimulating monetary conditions, inflationary expectations, rising world prices for the fiscal impulse will continue to affect consumer prices. Thus, taking into account the above, the risk of a positive deviation in the short-term inflation forecast is outlined, as well as the inevitable probability that the annual inflation rate will exceed the upper limit of the variation corridor of ± 1.5 percentage points from the target inflation of 5% in the IV quarter of 2021, which will negatively affect economic growth in the medium term. The National Bank notes that, on this basis, in the near future it is necessary to apply restrictive measures of monetary policy in order to consolidate inflationary expectations, as well as to ensure and maintain price stability necessary to maintain a stable level of potential economic activity in the medium and long term. // 20.08.2021 - InfoMarket
