Financial Education Campaign “Make Sense of Money”: Inflation as a Monetary Phenomenon
Automatically translated summary. The full text is available in Romanian.
As part of the financial education campaign “Make Sense of Money”, this note explains what inflation is, what causes it, how the National Bank of Moldova seeks to keep it in check and how it is measured in the Republic of Moldova, using the CPI.
Inflation is a rise in the prices of goods and services that erodes purchasing power; in December 2019 the annual rate was 7.5%. It can stem from higher aggregate demand, higher production costs or reduced supply. Its effect depends on the individual: holders of tangible assets such as property benefit from moderate inflation, while those holding cash lose purchasing power.
The National Bank of Moldova aims for price stability and targets inflation of 5.0% a year, with a possible deviation of ±1.5 percentage points. It uses the base rate, the exchange rate, reserve requirements and standing facilities, and communicates its decisions and a two-year forecast. Inflation is measured by the CPI, weighted as follows: food 39.4%, non-food goods 35.3% and services 25.3%. The note was funded by the British Embassy in Chișinău.
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