Download inflationist phenomenon from romania during 1996 – 2006 period

INFLATIONIST PHENOMENON FROM ROMANIA DURING 1996 – 2006 PERIOD
Harja Eugenia
University from Bacău, home address: Decebal street, building 21, A entrance, apt. 8, Bacău, zip code
600283, phone 0744593260, e-mail: [email protected]
In present analysis some theoretical aspects concerning inflation phenomenon signification, the modality in
which this is measured in Romania have been presented for the beginning. The main part of the research I
wanted to be a concrete analysis of inflation’s evolution in Romania anterior to October 1990, the moment of
prices liberalization and up to the end of 2006, moment in which Romania was integrated in European Union.
The analysis based on data’s published by official statistics at the end of every year, but also on personal
calculations realized with the purpose of obtaining a detailed CPI on main food goods subgroups, non-food and
services, highlighting thus a large series of differences between the products’ prices and services dynamics
belonging to the same group. The newness consists especially in this calculation, even though in some extent are
damaged by the indexes decimals’ garbling, that come to highlight some CPI’s particularities in the structure,
unmentioned so far but on a yearly level.
Key words: Consumer Price Index, Inflation, Real increase
Inflation represents a continuous, durable, generalized and self-sustained rise of prices from economy, under the
conditions of purchase power’s decrease of national currency. The main characteristics of the inflation are:
continuous rise of prices, currency mass rise, external commerce balance’s deficit rise, unemployment’s rise, the
population living standards decrease, salaries conflicts frequency for salaries rise, inefficient enterprising
bankruptcy, wealth transfer from creditors to debtors. Out of this, inflation may easily be considered the most
severe “disease” of a national economy, damaging the economical life as well as social and politic ones. Due to
the fact that main manifestation of inflation consists of generalized rise of the process from economy, worldwide it is measured through inflation rate starting with the calculation of a Consumer Price Index (CPI). The
inflation rate is calculated subtracting 100 from CPI (%), and shows the percentage that goods’ prices and
services’ tariffs that are included in population’s consumption in a certain period rose.
CPI is a measuring instrument that allows us to measure between two given time periods, the average prices
variation of purchased goods and of services’ tariffs used by people in Romania.
Immediately after December 1989 population’s demands increased based on salaries rise, but under the
conditions of interior production’s decrease. This demand was covered through an increased importation, aspect
that lead to a deficit of exterior commerce balance, meaning external debts’ rise. In this period, prices continued
to be hold under control, having the advantage of existent resources and by the fact that Romania did not have
any external duty at that moment. Unfortunately, instead of taking advantage of this situation, and a rising of
economical policy to be applied under the market’s economical conditions, where demand meets the offer, the
satisfying of population requests has been placed forward in order to exclude any revolutionary manifestation
from their side. From this reason, in January-October 1990 prices were maintained constantly, a CPI statistically
calculated not being registered.
Together with prices liberalization at the 1st of November 1990 a monthly CPI started to be calculated. From
that moment on, prices, that were kept constantly until then, started to rise worrisome, population dealing with
new aspects, with the fear that their salary allows less and less products and services to be purchased. Thus, in
only two months from prices liberalization, inflation rate was 37,7%, a real explosion of prices following the
moment.
1991-1993 period is characterized by a hyperinflation in Romania: prices at the end of 1992 were more than 3.2
higher than at the end of 1990, and again at the end of 1992 to be almost tripled, at the end of 1993 to be 3.56
times higher. In other words, during three years, prizes rose in Romania 34 times, under the conditions of a
pronounced industrial and agricultural production decrease, of dramatic GIP decrease, and of budgetary deficit
rise, of unemployment rate’s increase. It is the “darkest” period of Romanian economy, period when all negative
factors have damaged the economic state, lot of years being necessary to retrieve these negative effects and to
reach the prior condition. In the first two graphics yearly evolution of inflation rate can be followed as well as
inflation’s rate evolution at the end of the year (December as against the anterior December), both reaching their
summit in 1993.
Inflation at full tilt continues during 1994 also, even though the disinflation process is evident. A stabilization of
prices to a 61,7% rate at the end of the year has bees succeeded, but on the background of an unemployment rate
of almost 11%. Practically, this period after 1989 can be characterized in Romania at least by the following
general aspects: decentralizing of the economy, centralized back then, private economic sectors, completed
afterwards with a disorganization at a microeconomic level; increase and maintenance of a high level of
unemployment, included between 7-11%; continuous production’s decrease without the possibility of reaching
the situation before 1990; the loss in the first years of external market with tradition for our country and a
difficult rehabilitation in the following periods, in the some time with am exaggerated increase of importation
and with a market’s invasion of cheep goods and inadequate qualitatively; the increase of budgetary deficit and
of country’s external debts; the rise of salaries’ pressure by unions systems that ask permanently for salaries’
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rise under the conditions of a less and less performance economy, these involving the inflationist snail and
leading finally to real population salaries’ decrease; firms’ decapitalizing under the inflation’s conditions;
underground economy’s rise through a higher level of tax avoidance.
If up to 1995 National Bank of Romania practiced a restrictive policy concerning credits, through a very high
interest, starting with 1995 it reoriented its credits policy by interest’s decrease. This aspect lead on short term to
enterprising debts degree increase, to a labor places rise and immediately to an unemployment’s rate decrease,
the inflation rate coming back in two years to two ciphers. After the election from 1996 a new approach of
economical policy is brought in, respectively with budgetary incomes emanated from external loaning, as well
as from actives selling, leading towards the end of 1997 to a new inflation rate of 3 numbers, respectively to an
increase of 2.5 times of prices during one year period. During 1998-1999 a credit limitation policy is brought
into economy, as well as new facilities for direct investments in Romania, leading to an obvious process of
disinflation, inflation’s rate maintaining at the level of two ciphers. Starting with 2000 we deal with another
type of fiscal policy, one that encourages both profits reinvestment and exports. In the some time, a
reorganization of mining and quarrying system as well as energetic one takes place, diminishing the loses from
economy and the existent budgetary deficit. All these measures impose by country’s preparation for adhesion to
European Union together with the fiscal and currency ones, leaded to inflation’s rate decrease up to one level
cipher during one year time, starting with 2004. Starting with 2000, inflation’s rate calculated as yearly average
is easily placed over the inflation’s rate at the end of the year, due to high prices rises registered in the first part
of the year.
17,8
295.5
14,1
9,3
8,6
Total
223.8
199.2
100.0
4,87
Food
2006
150.0
30,3
2000
200.0
40,7
2005
250.0
2004
300.0
- detalii -
2003
350.0
2002
50,0
45,0
40,0
35,0
30,0
25,0
20,0
15,0
10,0
5,0
0,0
2001
Fig. 1 Inflation rate's evolution in Romania
at the end of the year (%)
Non-food
151.4
Services
50.0
61.7 27.8 56.9
37.7
40.6 54.8 40.7 30.3 17.8 14.1 9.3 8.6 4.87
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990*
0.0
From the graphic is evident that year 2006 brings the lowest inflation, the inflation’s rate at the end of the year
does not cross 5%, and the yearly average is 6,56%, an unmet level from 1990. The real economic rise process
is highlighted by constant positive dynamic in the past years of production as well as GIP, in parallel with a high
diminished unemployment, with a real salary rise and national currency estimation. Thus, for instance, in
December 2006, net average salary reached and surpassed for the first time in the 17 years the purchase power
of the salary that existed before prices liberalization, October 1990. Further on, I held forth to analyze the
discrepancies between the prizes rises existing at the main products subgroups, at the end of the observed
period.
Thus, if the CPI in December 2006 shown an average rise of prizes on a total of 2.864 times, as against
October 1990, on the three main subgroups of goods the rises have been different: food products prizes rose
with 2,210 times being situated under the average with 23% while non-food’s medium prizes rose in the some
span with 3.029 times (+6%), and the rendering services’ tariffs rose with 5.029 times, what represents a rise of
1,76 times higher than the total CPI.
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Fig. 2 Consumer Prices Indexes' evolution (C.P.I.) from
Romania from their liberalization up to the end of 2006
(12.1996/10.1990) (în quotients)
6000
5000
4000
3000
5027
Total C.P.I.
2864 times
3029
2210
2000
1000
0
Food
Non-food
Services
In the framework of food goods group, the highest rises were facing “loaf products”, of 5.428 times (2,5 times
as against total CPI and respectively 1,9 times as against the group average). These were close followed by “fish
and fish products” group with 4,067 times (1,8 times as against the total CPI and 1,4 times more than subgroup
average), by “milk and diary products” with raises of prizes of 3.053 times, flour with 2,829 times, maize flour
with 2,669 times etc. main subgroups dynamics was calculated and may be observed in the following graphic,
the rises being ordered decreasingly. The lowest prizes rises have been met with cocoa and coffee, products that
are not subscribed to main necessities. At the some category is subscribed the alcoholic drinks group, where the
prizes rise was with 39% under the group average.
In the framework of non-food goods group, the highest rises have been registered at “electric energy, gas and
central heating”, damaging in a great extent incomes and spending population’s budget, also given by the
important weight in total consumption of these expenses, (9,64% in 2004 for instance). These increased with
6,685 times in the analyzed period what means an increase of 2,2 times higher than the total CPI and a 2,3 times
more than group average. The lowest rises, as the following graphic presents, have been registered at the
“clothing, haberdashery, mercery, passementrie trimmings”, these rise being with
-43% as against the group
average.
In the framework of rendering services group, the highest rises were registered at “water, sewrage, sanitation”,
services that population’s households incurre compulsory, being necessary for living and occupying also an
important weight in their expenses (2,34% in 2004). These prizes rose with almost 2,8 times more than the total
CPI and with 4,9 more than group’s services average. With the some important rises hotels units
accommodation costs have been finalized under the conditions that the effort sustained for the accommodation
qualitatively increase was not felt at the some level. The lowest rises at services has been observed at “making
and repairing clothing and footwear” group, services required less and less in the latest years due to confections
and footwear’s cheap and low quality that exist on the importing market.
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Fig. 3 Consumer Prices Indexes' evolution (C.P.I.) from Romania
from their liberalization up to the end of 2006 (12.1996/10.1990)
for food goods
Cocoa and coffee
Vegetables and tinned vegetables
Fruits and tinned fruits
Edible oil, bacon, fats
Alcoholic beverages
Bread
Sugar, confectioneries and honey
Other food goods
Bakery specialties
Meat, tinned meat and meat products
Maize flour
Eggs
Flour
Milk and diary products
Fish and tinned fish
Loaf bread
831
1275
1541
1705
1744
2065
2279
2325
2619
2632
2669
2824
2829
3053
4067
C.P.I. Food goods
2210 times
5428
0
1000 2000 3000 4000 5000 6000
CPI quotient
Fig. 4 Consumer Prices Indexes' evolution (C.P.I.) from Romania
from their liberalization up to the end of 2006 (12.1996/10.1990)
for non-food goods
Clothing, haberdashery,mercery, passe
mentrie trimmings
Cultural and sports products
Hygiene, cosmetics and medical
articles
1549
C.P.I
Non-food
goods
1626
3029 times
1814
Household appliances, furniture
1881
Chemicals
2054
Footwear
2161
Fuels
2903
Tobacco, cigarettes
3527
Other non-food goods
3528
Electric energy, gas, and central
heating
6685
0 1000 2000 3000 4000 5000 6000 7000 8000
CPI quotient
820
Fig. 5 Consumer Prices Indexes' evolution (C.P.I.) from Romania from their
liberalization up to the end of 2006 (12.1996/10.1990)
for services
Making and repairing clothing and footwear
1878
Motor and electronic repairs and photo works
2911
Interurban transport
3569
Restaurants, cafes, canteens
3692
Cinemas, theatres, museums, expenditures …
3712
Hygiene and cosmetics
3928
Medical care
4193
Mail and telecommunications
4412
Urban transport
C.P.I.
services
5027 times
5835
11893
Other services
Payment of accommodation in hotel units
13841
Water sewerage, sanitation
14024
0
2000
4000
6000
8000 10000 12000 14000 16000
CPI quotient
Data sources: own calculation realized according to “Prices Statistical Bulletin” N.I.S., collection
As it could be observed from the last three graphics presented, behind the three main groups’ CPI important
differences are hiding, differences that reach even up to 7 times inequalities of the registered dynamics. It would
be important that the main prizes rises to become felt at the products and services that are placed on a lower
importance in population consume, aspect not reached yet.
As it was shown so far, CPI is one of the fundamental macroeconomics indicators, its dimension reflecting at
the end economy’s performance and not on the last position, population’s living standards. Because of the
importance that inflation reducing has and also its maintenance at a lower level as possible, aniiflationist
measures have to constitute a permanent objective of all governments that rule the country for a certain period,
representing finally an indicator that shows the performance degree of that government.
Selective bibliography:
1.
2.
3.
Harja E. – “Statistics Applied to Economy”, MatrixRom, Bucharest, 2005;
ługui A. - "Inflation – Concepts, Theories and Economical Policies”, Economic Publish house ,
Bucharest, 1979;
*** “Prices Statistical Bulletin”, National Institute Statistics, numbers: 12 during 1994 – 2006 period;
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