The Evolution of Inflation in Romania
The evolution of inflation between 1989-2000- short overview
As in other centrally planned economies, most consumer prices in Romania were fixed before the 1989 revolution. However, with the liberalization of economic policy dramatic changes occurred and high inflation was, and still is, expected to remain one of Romania¡¦s key short-term economic concerns.
The evolution of Romania¡¦s annual inflation rate (year-end to year end or one year inflation) after 1989 started with a relatively moderate figure in 1990 (37.6%), but was very high during 1991 to 1993 (205.5% in 1991, 199.5% in 1992 and 295.5% in 1993).
The reduction in inflation from 1991-1993 annual triple-digit rates to less than 33% in 1995 was the main achievement of the stabilization program of 1993-1994. However, the expansionary macro-economic policy pursued in 1995 led to a resurgence of inflationary pressures in the middle of 1996, which resulted in year-end inflation of 56.9% in 1996.
From 1994 to 1997 there was a period of repressed inflation. Many of the prices (energy, gas, fuel, etc.) were not true, in the sense that consumers were paying less than the related costs to producers. The difference was found in the growth of the deficit in the balance of payments, in the budgetary deficit and in the huge losses reported by large state-owned companies.
Chart 1 Source: National Institute of Statistics
The exchange rate liberalization and the energy price adjustments of the first half of 1997 resulted in a steep increase (100%) of the price level. After this price explosion, under the effect of budgetary constraints and tight monetary policy, inflation seemed to calm down, but not at reassuring levels. The initial forecast of 90% inflation for the whole year was exceeded by June 30, 1997, and the resulting year-end rate of inflation was 151.4%.
The impact of restrictive monetary and fiscal policies throughout 1998 brought the year-end inflation to 40.7%, in line with expectations. The
As in other centrally planned economies, most consumer prices in Romania were fixed before the 1989 revolution. However, with the liberalization of economic policy dramatic changes occurred and high inflation was, and still is, expected to remain one of Romania¡¦s key short-term economic concerns.
The evolution of Romania¡¦s annual inflation rate (year-end to year end or one year inflation) after 1989 started with a relatively moderate figure in 1990 (37.6%), but was very high during 1991 to 1993 (205.5% in 1991, 199.5% in 1992 and 295.5% in 1993).
The reduction in inflation from 1991-1993 annual triple-digit rates to less than 33% in 1995 was the main achievement of the stabilization program of 1993-1994. However, the expansionary macro-economic policy pursued in 1995 led to a resurgence of inflationary pressures in the middle of 1996, which resulted in year-end inflation of 56.9% in 1996.
From 1994 to 1997 there was a period of repressed inflation. Many of the prices (energy, gas, fuel, etc.) were not true, in the sense that consumers were paying less than the related costs to producers. The difference was found in the growth of the deficit in the balance of payments, in the budgetary deficit and in the huge losses reported by large state-owned companies.
Chart 1 Source: National Institute of Statistics
The exchange rate liberalization and the energy price adjustments of the first half of 1997 resulted in a steep increase (100%) of the price level. After this price explosion, under the effect of budgetary constraints and tight monetary policy, inflation seemed to calm down, but not at reassuring levels. The initial forecast of 90% inflation for the whole year was exceeded by June 30, 1997, and the resulting year-end rate of inflation was 151.4%.
The impact of restrictive monetary and fiscal policies throughout 1998 brought the year-end inflation to 40.7%, in line with expectations. The