It's 8:26 AM in Bucharest this Friday morning, European markets open in half an hour, and the National Bank of Romania has just served us a perfect example of what I call "the illusion of monetary control." Romanian inflation is slowing down, certainly, but as Bloomberg and the BBC report, this improvement could evaporate faster than a mirage in Europe's energy desert.
Inflation tamed? Not so fast
Analysts are celebrating the slowdown in Romanian inflation, and the central bank is already eyeing a loosening of its monetary policy. Classic. As soon as the numbers improve, everyone wants to believe the battle is won. Except inflation isn't a pet you train once and for all.
Read more: trump replays same Read more: algeria wins germanyThe reality is that Romania — like most European economies — is navigating an ocean of energy uncertainties. And when I say ocean, I'm thinking mainly of the pipelines and cables that connect Bucharest to the rest of the world. Because while central bank technocrats adjust their econometric models, the real determinants of Romanian inflation are being negotiated on global energy markets.
The energy dependency trap
According to sources, the surge in global energy prices — fueled notably by the Iranian conflict — directly threatens this inflationary improvement. And here we touch the heart of the problem: Romania can have the most sophisticated monetary policy in the world, but if gas and oil prices soar, its inflation will mechanically follow.
This is exactly what happened in 2022, when all of Europe discovered its energy dependency. Central banks raised their rates like madmen, believing they could tame imported inflation. Result? Guaranteed recession, persistent inflation. A masterpiece of economic policy.
When markets dictate monetary policy
Let's look at the schedules: while Romania sleeps on its inflationary laurels, Asian markets have already closed (Shanghai at 3:26 PM local time, Tokyo at 4:26 PM). Overnight energy news has had time to make its way through. In a few minutes, London will open (8:00 AM GMT), then Frankfurt and Paris (9:00 AM CET). And if energy prices flare up at the European opening, Romania's beautiful story of controlled inflation could fall short before New York even wakes up.
That's the reality of interconnected economies: your national monetary policy becomes hostage to decisions made thousands of kilometers away. The Romanian central bank can adjust its key rates to the nearest tenth of a point, but if London traders decide oil is worth 20% more this morning, all their calculations go up in smoke.
The illusion of fine-tuning
What profoundly annoys me in this story is this pretension of central banks to "fine-tune" inflation. As if the economy were an airliner you steer with precision. The truth is that Romanian inflation depends more on geopolitical tensions in the Middle East than on monetary policy decisions made in Bucharest.
Mainstream economists continue to sell their model where central banks control inflation via interest rates. Pure fiction. In an open and energy-dependent economy like Romania, inflation is primarily a geopolitical and structural phenomenon. Interest rates only amplify or attenuate shocks; they neither create nor eliminate them.
Who wins, who loses in this charade?
While the Romanian central bank may be preparing to ease its monetary policy, let's look at who really benefits from this situation. Romanian energy importers, who were able to rebuild their margins during the lull. Borrowers, who hope for lower rates. Exporters, who benefit from a weaker currency.
And who loses? Savers, whose purchasing power will be crushed if inflation takes off again. Workers, whose real incomes will stagnate. And above all, the credibility of Romanian monetary policy, which will discover once again that it doesn't control much.
The energy lesson
This Romanian story perfectly illustrates the impasse of European monetary policies facing energy shocks. As long as Europe hasn't resolved its structural energy dependency, its central banks will remain powerless spectators to global geopolitical upheavals.
Real anti-inflationary policy isn't about playing with interest rates. It's about investing massively in energy independence, diversifying supplies, developing renewables. But that requires long-term vision and massive public investment. Two things that guardians of monetary orthodoxy hate above all else.
Meanwhile, Romania can savor its inflationary respite. But let it not be mistaken: the next energy flare-up is only one geopolitical crisis away. And when it arrives, all the econometric models in the world won't be able to do anything about it.
Frequently Asked Questions
Q: What is causing Romania's inflation risks?
Romania's inflation risks are primarily driven by its dependency on global energy markets. The surge in energy prices, particularly due to geopolitical tensions like the Iranian conflict, threatens to undermine any improvements in inflation rates.
Q: How is the National Bank of Romania responding to inflation?
The National Bank of Romania is considering loosening its monetary policy in response to a recent slowdown in inflation. However, analysts caution that this improvement may be temporary due to ongoing energy uncertainties affecting the economy.
Q: What impact did energy prices have on Romania's economy in 2022?
In 2022, rising energy prices significantly impacted Romania's economy, leading to increased inflation despite central banks raising interest rates. This situation highlighted the challenges of managing imported inflation in a context of energy dependency, resulting in a recession and persistent inflation.