Romanians refuse market prices. They put their income increases to bed. The dreaded inflation-wage spiral has not found traction

The consumption of products and services is numb in Romania. People would rather put their last year’s pay raises to the mattress than spend the money. Citizens’ deposits increased in March 2024 by 14.2% in real terms, the same percentage by which, on average, the net incomes of the population increased in the same interval. The price-wage spiral did not happen.

Household deposits in lei increased to 226 billion lei, by 21.8% (14.2% in real terms) compared to the same period of the previous year, informs the National Bank of Romania (BNR). The latest figures published by the National Institute of Statistics (INS) related to the incomes of Romanians show that, in February 2024, the average net salary was higher by 14.2% compared to the same month last year. Therefore, we have identical growth figures for salary increases and savings made in population banks.

Consumer goods rose in price by 10.4% in 2023. Prices continue to rise, but at a slower pace, now reaching 6.6%, annualized.

These developments show that the price-wage spiral, which some financial analysts feared, due to strong nominal wage increases, has not happened. The price-wage spiral is an economic phenomenon in which rising prices lead to rising wages, which in turn cause a further rise in consumer prices, which leads to new upward pressure on wages, and so on.

Otherwise, the policy of keeping interest rates at a high level of the National Bank seems to have paid off, attracting the population’s deposits and hindering credit and, with it, consumption.

We don’t go to the hairdresser anymore. We eat and smoke less. We don’t buy anymore

Market statistics show that citizens have begun to restrict consumption, despite the increase in incomes indicated above. The consumption of services, for example, has stagnated. According to the INS, the volume of turnover from market services provided to the population, compared to February 2023, increased by a tiny 0.3%. Significant decreases were recorded in hairdressing services and other beautification activities (-19.2%) and in the activities of tourist agencies and tour operators (-0.5%).

Trade is no better either. The turnover in the wholesale trade (excluding trade in motor vehicles and motorcycles), in February 2024, increased, both as a seasonally adjusted series, by only 3.6%. Decreases were recorded: intermediation activities in trade with
wholesale (-11.9%), wholesale of consumer goods, other than food (-8.5%), wholesale of IT and telecommunications equipment (-6.2%) and wholesale of food products, beverages and tobacco (-3.7%).

Romanians no longer stopped by the car service. But they got two wheels

The turnover in the trade of vehicles in February 2024, compared to February 2023, registered an increase of 6.0%, due to the increases recorded in the trade of parts and accessories for motor vehicles (+17.9%). The trade in motorcycles and their servicing took a consistent increase of 17%. But trade in motor vehicles grew modestly, by 7.4%. Large decreases were recorded in the activities of maintenance and repair of motor vehicles, the part that affected the indicator the most, they decreased by no less than 26.5%.