Inflation rate in August decreased to 9.7%

The annual inflation rate declined by 1.1 percentage points to 9.7% in August, being by 0.2 percentage points higher than the projected value. The National Bank of Moldova (NBM) said the deviation of effective inflation from the forecast one was primarily due to the higher than expected rise in fuel prices, IPN reports.

According to the central bank, the increase in charges with their secondary effects, the war in Ukraine and last summer’s drought keep the inflation above the target. The disinflationary demand starting with the middle of 2022 and the appreciation of the leu at the beginning of this year continued to attenuate these factors.

As regards economic activity, the NBM said most of the economic activity indicators continued their negative tendency, confirming the expected contraction for the second quarter of 2023, when the inflation forecast was updated. The data published recently by the Bank show a 2.2% contraction of the Gross Domestic Product compared with the corresponding period of 2022, after a 2.4% decline at the start of this year.

“The given evolution of economic activity was supported by a modest domestic demand influenced by the 7.7% decline in the population’s consumption and the 6.9% decrease in the gross fixed capital formation against the reduction in the population’s real incomes, the yet restrictive lending conditions and the increased uncertainty in the region. The given impact was partially attenuated by the favorable result in the agricultural sector and by the performance in the information and communications sector,” said the NBM.

The central bank also said that the balance of the inflation forecast risks remains disinflationary and the uncertainties remain pronounced. Among the main sources are the tense situation in the region, reflected in the statistics of compensations for public utilities, the demand and volatility of prices on the international market. In advanced economies, the interest rates are expected to rise further and to remain high for a longer period.

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