Romanian inflation up

BUCHAREST – Romanian inflation jumped in January to 8.9 percent on the year because of high energy costs and rampant domestic consumption in the emerging economy, adding pressure on the central bank to raise interest rates. Analysts expect inflation in Romania, which wants to join the European Union next year, to start falling around the second quarter of this year. But many still believe annual price growth will exceed the central bank’s December target of 4-6 percent, despite this week’s steep rise in interest rates to 8.5 percent, ordered by the bank to fight price growth. «Rising consumption and administered price hikes were behind the blip in January,» said Sorin Moncea, Finansbank chief dealer in Bucharest. «The central bank’s rate hike could bear fruit sometime in March when I expect inflation to start falling.» The leu currency did not react to the data in after-hours trading, but earlier in the session it hit a new four-month high of around 3.53 per euros. Prices rose 1.0 percent on the month in January after a 0.5 percent rise in December, taking the annual rate up from 8.6 percent in the last month of 2005, data from the National Statistics Board showed. Analysts polled by Reuters expected annual inflation at 8.7 percent in January and a monthly rise of prices at 0.7 percent. Inflation pressures Romania has squeezed inflation down from as much as 40 percent in 2000 but price pressures are on the rise again. One of the reasons is voracious spending, boosted in 2005 by cuts in taxes when the centrist government imposed a flat tax rate of 16 percent and introduced taxes on savings income. Many analysts also believe the central bank’s policy to fight off foreign cash last year by keeping market interest rates down and intervening in the currency market has also weakened its fight against inflation. «The year-on-year inflation figure would raise our end-year forecast above 6.5 percent, which emphasizes the need to keep the monetary policy very restrictive,» said Simon Quijano-Evans, analyst at Bank Austria Creditanstalt in Vienna. The BNR missed its first ever inflation target last year when annual price growth came to 8.6 percent, compared with the goal of 6.5-8.5 percent, putting its credentials under scrutiny.

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