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Decline in inflation does not mean decrease in prices, NBM governor

The annual rate of inflation in the third quarter of this year continued the upward trend of the previous period. However, it was lower than the value anticipated in August 2022. According to the National Bank of Moldova, in September it was 34%, up from 31.8% in June. As a result, as in the previous period, the annual rate of inflation in the third quarter continued being above the upper limit of the interval of 5% ±1.5 percentage points, IPN reports.

NBM governor Octavian Armașu told a news conference that the average annual inflation rate in the third quarter was 33.9%, up 4.6 percentage points on the previous quarter.

The given dynamic was supported by the increase in international and regional prices of energy resources. This led to a rise in energy prices on the domestic market and the adjustment of gas, heat and electricity rates. Also, the hydrological drought exerted pressure on food prices.

The adjustment of rates, rise in food and fuel prices and growing salaries supported the augmentation of costs for business entities, which gradually impacted the prices. The impact of these factors was significantly amplified in the course of this year by the escalation of the situation in Ukraine, which generated additional pressure on food and fuel prices and the prices of some of the subcomponents of basic inflation.

The governor said the peak of inflation was overcome and inflation will now follow a downward trend. The evolution of inflation creates preconditions for switching over to a simulative policy. This means a possible reduction in the base rate and the required reserve ratio in the future. Also, the aggregate demand is powerfully disinflationary and needs to be supported by the fiscal and monetary policy. But there is great uncertainty deriving from external demand, energy prices, the war in Ukraine, etc.

Starting with the fourth quarter of this year, the annual rate of inflation will decline, but this does not mean the prices will decrease. The wave of price increases will stop. It is not known if the prices will be adjusted down, as it happened before the pandemic, but forecasts show a return to the pre-pandemic prices will not happen. This is possible in the case of oil products but the situation depends on conjuncture, explained Octavian Armașu.

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