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Vegetables and fruits might temper swelling inflation
Iurie Gotisan, June 9, 2005

Both Government, National Bank (NB), National Statistics Bureau (NSB) and independent pundits forecast a slowdown in the price hike due to the seasonal food cheapening. In the summer the price on many food products goes down thus holding up the inflation. Statistically speaking, a considerable drop in food prices is registered in July and August. Deflation is not to be excluded during this period.

Falling prices on vegetables, bread and meat hang on to inflation. Food accounts for about 40% of the populations' consumption, accordingly any slight change in the prices affects the rest of economy. NB and NSB rely on statistics when calculating a price hike close to zero in the summer. The farmers overload the markets in towns with fruits and vegetables, thereby sending inflation down for several months. This year is not an exception. Pundits expect it would neutralize the effects of price hike on fuel and other food products, etc.

Apart from statistics and NSB's estimations, the current context sends the prices on agricultural products even further down. Shortly farmers would bring their fruits and vegetables to the market, while the newly harvested wheat would cheapen the bread, especially in rural areas. Sales on the domestic conserved market are very low throughout June 30 - October 1 due to extremely low prices on the market as farmers' supply is plenty.

If the prices on wheat go down in July, bread price might also go down. On the other hand, many experts doubt such an evolution, especially as massive investments in technology would be needed. Noteworthy, bread accounts for 1/5 of the expenses on food, accordingly it might greatly impact inflation in the next months.

There are other forces impinging on the prices as well. Imports are getting cheaper as the Leu is appreciating. Meat and sugar prices would get cheaper and cheaper. This holds true for the diary products, accounting for more than 10% of the population consumption, that are also likely to go down. Seasonal cheapening would send inflation down this summer. It remains to be seen if the problems in agriculture would allow for long-term stability of the prices, or the prices on food would surge again. We'll see…






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