Consumer price inflation in Moldova jumped 4.64% year-on-year last month, following a 3.5% increase in July. It was the fastest inflation rate since April 2020 driven by the prices of fuels (18.0% vs 17.2% in July), building materials (18.3% vs 14.9%) and some food items (4.8% vs 4.2%), primarily meat and products (7.3% vs 6.7%) and dairy products (5.6% vs 5.1%).
Non-food prices increased well above average (6.9% vs 5.5% in July), driven by the surge in fuel prices. The prices of services, which in Moldova include electricity and natural gas, also went up in August (1.0% vs -0.4%).
On a monthly basis, consumer price inflation went up 0.33%, following a 0.1% gain in July. Food prices dropped 0.53%, while non-food prices were up 1.01% month-on-month. Consumer prices in the services sector advanced by a monthly 0.53%.
The National Bank of Moldova (BNM) expects 3.1% inflation this year and 7% inflation in 2022, according to latest data from July. The central bank decided to raise its benchmark interest rate at 4.65% from 3.65%, on Sept. 3 , the second consecutive hike in borrowing costs since July 2019.
Also, the overnight credit rate and the overnight deposit rate were raised by 1 percentage point, to 7.15 percent and 2.15 percent, respectively. Meantime, the level of reserve requirements for banks holding reserves in US dollars and Moldovan lei remained unchanged.
Policymakers said the decision aims to alleviate inflationary pressures from both aggregate supply and demand, as well as the risks and uncertainties caused by the evolution of the Covid-19 situation.
Moldova's economy expanded 21.5% year-on-year in the second quarter of 2021, following a 1.8% growth in the prior quarter. It was the highest record of expansion since at least 1996, largely due to low base effects from the previous year when the Covid-19 struck.
Key drivers of growth were household consumption (20.7%), government spending (29.1%) and gross fixed capital formation (24.5%). Meanwhile, trade contributed negatively to the GDP growth, as imports soared 52% and exports rose just 10.7%. Considering the first half of the year, the economy advanced 11.7%.
Inflation is surging not only in Moldova. Consumer prices are rising quickly across huge swaths of the developed world even when volatile food and energy costs are excluded.
Economists and central bankers agree there is upward pressure on prices. But there is no consensus on whether rising inflation is "transitory" or if price rises signal the start of a sustained trend with major implications for economies.