The increase in consumer prices was of merely 0.11% in July, primarily because the foods of the season became cheaper. The inflation over the last twelve months reached a new all time low, 6.2% at the end of July, according to the information released by the National Statistics Institute.
July inflation is giving NBR Governor Mugur Isarescu hope that this year's inflationary target will be attained. NBR targets a 5% inflation rate, plus or minus one percent, and the positive trend in the first seven months could place inflation within the interval pursued by the central bank, despite initial expectations.
The inflationary figure in July is the all time low for this month, when controlled prices (especially those of utilities) are increased traditionally. The gas price last month went up by 1.5%, not enough to cause significant rises in other products' prices. The cause of such a low inflation was the deflation (drop in prices) of the foods (1.2%), especially for vegetables and canned vegetables (9%). Most foods prices stagnated in July, and the drop in vegetables prices was decisive.
The price reductions are due to the situation last year, when because of the floods that diminished the supply, prices of the fruit and vegetables of the season went up.
The highest rises in prices occurred in July 2005, when floods were at their worst. Prices came back to normal this year, that is lower than in 2005.
"After the announcement of the inflation of 0.11% in July, inflation will almost certainly go down, within NBR's interval by the end of the year," says Ion Ghizdeanu, chairman of the National Forecasting Commission. His initial estimates were for 0.8% inflation in July, which would have allowed attaining the 6% at the end of the year. Ghizdeanu said that there might be an overall decline in consumer prices this month, the first in the last 17 years.
Actually, the central bank knew about the very low level of inflation in July one day before the official announcement, which made it not take additional steps to tighten its monetary policy measures. Two days ago, the NBR decided not to up the benchmark rate (8.75%) and leave the mandatory minimal reserves unchanged, grounding its decision on the much better performance of disinflation compared with initial expectations.
What happened? Other than the drop in foods prices, the utility price increase schedule, as agreed upon with the EU, was pushed back for 2007 and 2008, which relieved some of the pressure on the inflation. Each month with utility price increases would usually be an inflation peak, as these price increases have a relatively big influence on the other consumer prices.
In July, while food prices went down, the prices of non-foods and of services went up by 1.15%, and 0.55% respectively. Besides the 1.5% rise in the gas price, cigarettes were the only ones to have witnessed a significant price hike, 7.5%. As far as services are concerned, only the increase in CFR (National Railway Company) rates by 2.3% was above the average rise in prices.
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