By Adam Brown
June 10 (Bloomberg) -- Romania’s inflation rate fell more than economists forecast in May, raising expectations of an interest rate cut, as consumption slumped on slower wage gains, rising unemployment and an easing of lending.
Annual inflation slowed to 6 percent in May from 6.5 percent in April, the Bucharest-based National Statistics Institute said on its Web site today. The median estimate in a Bloomberg survey of seven economists was for a 6.2 percent rate. On the month, prices stagnated after rising 0.3 percent in April.
“This is a clear indication of less strain on prices coming from the demand side and we expect the disinflation process to continue until July,” Nicolaie Alexandru-Chidesciuc, senior economist at ING Bank Romania, said in an e-mail today. “Another half-percentage-point cut in the key interest rate could be delivered June 30.”
Inflation is slowing throughout eastern Europe, compelling central banks to cut interest rates as economies follow their western counterparts into recessions. A slump in exports and foreign investment has damped consumption as unemployment rises and credit tightens.
The central bank lowered its main interest rate in May to 9.5 percent from 10 percent and next meets on June 30. Governor Mugur Isarescu said last month “disinflation will come back for some quarters.”
After the inflation data, Romania’s leu strengthened 0.3 percent to 4.1886 per euro as of 10:35 a.m. in Bucharest while the benchmark BET stock index rose 1.6 percent.
Romania last month joined Hungary, Latvia, Belarus, Ukraine and Serbia in requesting aid from the International Monetary Fund to bolster the economy. The IMF, the European Union and other lenders agreed to provide Romania with 20 billion euros ($28 billion) in financing.
As part of the agreement, Romania is targeting a budget deficit of 4.6 percent of gross domestic product this year, from a gap of 4.8 percent last year, helping ease inflation with spending cuts that include a wage freeze for state workers.
Prices of food, tobacco and alcohol rose an annual 4 percent in May from 4.6 percent in April, while prices of other goods increased 6.6 percent, compared with 7.1 percent, the institute said. The prices of services rose 8.5 percent in May after growing 8.8 percent on the year in April.
A 13.7 percent drop in consumption in the first quarter prompted an annual economic decline of 6.2 percent and helped push up unemployment to 5.8 percent from last year’s 16-year low of 3.8 percent.
Private lending increases slowed to an annual 18.9 percent in April from 23.1 percent in March and as high as 64 percent a year ago while net monthly wage growth slowed to 9.8 percent on year from 17.6 percent.
The Banca Nationala a Romaniei lowered its 2009 year-end consumer-price growth forecast to 4.4 percent on May 7 from 4.5 percent as inflation slowed from the year’s peak of 6.9 percent in February.
Isarescu has also predicted that the economy will post zero growth this year, avoiding a contraction for the full year because of the IMF-led loan.