Thursday, March 10, 2011

Romanian Inflation Accelerates More Than Expected in February

Romania’s inflation rate rose in February more than economists had forecast as higher global fuel and food costs put pressure on domestic consumer prices.

The rate increased to 7.6 percent, after dropping 1 percentage point to 7 percent in January, the Bucharest-based National Statistics Institute said today in an e-mailed statement. The annual rate exceeded the median estimate of 7.4 percent in a Bloomberg survey of six economists. Prices advanced a monthly 0.8 percent.

Romanian policy makers have been struggling to tame inflation driven by a government increase in a value-added tax last year, which prevented the central bank from cutting its key rate of 6.25 percent further to give a boost to the recession-hit economy. The central bank has reasons to be concerned about inflation because of surging food and oil prices worldwide, Governor Mugur Isarescu said yesterday in Bucharest.

“Given rising concerns about food and commodity prices, we believe the balance of risks associated with our inflation forecast is slanted to the upside,” Citigroup Inc. economists Ilker Domac and Gultekin Isiklar wrote in a note to clients today before the release. “Looking ahead, we expect inflation to decline to around 4 percent by the end of the year, which is more pessimistic than the National Bank of Romania’s forecast.”
Food Prices

Food-price inflation accelerated to an annual 8.8 percent in February compared with 7.2 percent in January, driven by surging bread and vegetable costs, the institute said. Prices for services rose an annual 6 percent compared with 5.9 percent and non-food prices advanced 7.3 percent, compared with 7.2 percent the previous month, boosted by higher tobacco prices.

“Inflation is an extremely insidious disease and we have to keep it under control, I cannot say the central bank is optimistic,” Isarescu said. “After the drop in January, the rate will stay between 7.2 percent to 7.5 percent until the summer, before hopefully falling below 4 percent by year end.”

The country’s central bank raised its inflation forecast on Feb. 7 for this year to 3.6 percent from a November forecast of 3.4 percent because of rising global fuel and food prices, Isarescu said. The rate will probably drop to 3.2 percent in 2012.

-- With assistance from Zoya Shilova in Moscow and Barbara Sladkowska in Warsaw. Editors: Douglas Lytle, Alan Crosby

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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