Inflation - Romania is well ahead of any all the major economies

The hot topic in economics in every country at the moment is inflation and Romania is well ahead of any all the major economies.

Comparing the current forecasts for 2021:

- Romania - 7.4%

- U.S.A - 4.6%

- China - 1.8%

- Germany - 2.9%

- Japan - 0.2% [lowest in the world]

- France - 2.8% [highest since 2008]

What is happening inn the world to cause this problem?

Many of the governments are blaming energy prices , especially oil and gas which have increased dramatically over the past year. So they are telling their public that it is cost inflation imported and not caused by any internal policies of the administration.

Indeed the U.S.A. have just released 50 million barrels of oil from their reserves to counteract the effect of the rising price in imported energy. According to the ECONOMIST magazine this is being carried out in parallel with China, India, Japan, South Korea and U.K.

This explanation ignores the trillions of dollars of government money put in the economy during the pandemic. This is causing a demand side pressure without the corresponding productivity.

The ROMANIAN JOURNAL OF ECONOMIC FORECASTING have written a 19 page thesis which examines the many economic concepts, especially monetary, behind inflation but you will need an advanced study of economics to understand it .

I will offer the reader a simpler view by looking at the 2 countries which are the lowest-Japan- and the highest -Romania- in the above list.

- JAPAN

In the case of Japan they have been experiencing "stagflation" [persistent high inflation combined with high unemployment and a lack of demand] for years and have very high food prices already so any inflation is already built in to their economic statistics . Indeed if one excludes energy and fresh food Japan has a negative inflation rate of -0.5%. So special factors in this case

- ROMANIA

High energy prices are one of the main factors causing the high inflation. So, is the policy of the National Bank which controls the monetary supply but there are two other important factors which are the desire of business to make up for losses in the pandemic and the pent up demand which is very difficult to measure in an economy which still has many cash transactions , meaning that the National Bank does not have have such potent levers as other economies.

So, to conclude, the national banks have a strong influence in developed economies as they can reduce inflation by increasing interest rates. This has the effect of taking money out of the demand side of the inflation equation by reducing the disposable income of consumers through increased borrowing costs and by encouraging savers to keep their money and not spend it. This is not so easy to do in a developing economy like Romania where there is not a lot of disposable income and consumer borrowing is still not as high as in the most developed countries.