How is inflation calculated?

Inflation is calculated based on the weighting of price developments for goods and services, depending on the annual structure of household expenses – the average consumption habits.

For example, in Romania in the year 2022 the structure of the consumption basket was as follows:

➤⠀food products – 33.02%;

➤⠀non-food goods – 49.38%;

➤⠀services – 17.60%.

From the European perspective, it is very important to monitor inflation on the harmonized index of consumer prices – calculated based on a unique methodology for all EU countries. 🌍

During the last quarters, we have witnessed a generalized increase in consumer prices with accelerating rates (towards the highest in recent decades), worldwide, at the European level, and domestically. This intensification of inflationary pressures has been caused by a series of factors, from the supply side (the overlap of shocks, including the one in the energy market), demand side (post-pandemic economic recovery), and geopolitical (the events in Ukraine and their consequences).

For example, according to data from the International Monetary Fund (IMF), international energy prices increased at an average annual rate of 99.6% in 2021 and at an average annual rate of 70.4% in the period January – November 2022. The evolution was not driven by a significant increase in energy demand, but by the consequences of the pandemic – the transition to a new economic model, based predominantly on energy consumption from renewable sources. In this context, governments have implemented measures to counteract the developments in the energy market, including domestically, these having recently been extended until the spring of 2025. ⏱

At the same time, international crude oil quotations increased at average annual rates of approximately 70% in 2021 and 40% in 2022.

Also, international food prices increased by 26.1% year-on-year on average in 2021 and by 15.2% year-on-year on average in the period January – November 2022. 📈

At the level of the real economy, we have witnessed the continuation of the post-pandemic recovery in recent quarters, a development influenced by a number of factors, including the low level of real financing costs (nominal interest rates adjusted for inflation), but also the excess savings accumulated during the quarters in which sanitary restrictions were in place.

You can find more details about all of the above in our article on the Blog: „Inflation now, a spike”.  🙂