Unfavourable weather could push inflation rate up

The unfavourable climatic conditions could influence a surge in the rate of inflation, the experts say. They consider that the inflation has a seasonal character which occurs more often in January-April and August-October every year. This phenomenon is related to the increased dependency of the local economy on agriculture, increased dominance of imports, and external markets. Expert of the Analytic Centre “Expert-Grup” Alexandru Gamanjii says that the analysis of the inflation rate in the period of January-May 2007 and the tendencies for the second half of the year show that the forecasts of the Government, NBM and IMF could bear out. The Government and the National Bank forecasted for this year an inflation of up to 10%, against 14.1% in 2006, while the IMF forecasts for the same year an inflation rate of 10.5%. According to the National Bureau of Statistics, the inflation rate constituted 0.9% in May, and in January-May it reached almost 4%. However, the future evolutions of the inflation rate will depend on the next months’ trends: if deflation occurs, the limit of 10% could be respected. But if it continues to grow due to unfavourable climatic conditions during the summer months (as in 2004), the limit of 10% might be exceeded. At the same time, the expert thinks it is strange that during the diminishing of the industrial production, especially at the wine companies (for example the 3-fold reduction in wine exports to Belarus in Q1), and respectively, of the number of employees, as well as in light of the slow paces of economic growth, the inflation rate stays moderate. A relevant example in this respect is the balance between MDL, USD and EUR maintained at a low level. According to our estimations, the real currency exchange rate should constitute about MDL 16-17 per USD 1 and MDL 22-23 per EUR 1. The exchange rate is set as a result of the interaction between demand and supply of foreign currency. For Moldova the supply of currency comes from export, remittances, foreign investments and official foreign assistance. The demand of currency comes from the expenses for import. On the whole, the rate MDL against USD should represent the balance between the levels of prices from the country and abroad, respecting the balance between the internal and external purchasing power of the respective payment means. The purchasing power parity is influenced by all the changes of prices, thus the inflation or deflation should change the currency exchange rate, the expert of the analytic centre “Expert-Grup”, Alexandru Gamanjii says.