Romania faces EU’s highest inflation as prices bite

Romania is facing the European Union's highest inflation, with rising food, fuel and electricity costs forcing households and businesses to cut spending.

Inflation reached 11 percent in May before slipping to 10.4 percent in June, still the highest rate in the bloc. Electricity bills rose 55 percent in May from a year earlier after the government removed price caps, while real wages fell by almost seven percent that month as salaries failed to keep pace.

The government has also introduced new taxes to address the EU's largest budget deficit. Economists and businesses say weaker purchasing power is weighing on spending in the country of 19 million people, where the average salary is about 1,100 euros, or $1,300.

Laurian Lungu, president of Consilium Policy Advisors Group, said Romanians now spend a third of their income on food, compared with 14 percent in Germany.

Political tensions over austerity measures helped bring down Romania's pro-EU governing coalition in May. A new government has not yet been formed, and debate over a public-sector wage law contributed to a three-day healthcare strike in July over fears that bonuses would be cut.

President Nicusor Dan said after Romania avoided a downgrade of its credit rating to below investment grade by Fitch that purchasing power had declined but the country was stabilising financially. He signed a bill this week reducing taxes on diesel and capping commercial markups on diesel and petrol.