Romania inflation rises to 8.6% y/y in March

Analysts polled by Reuters earlier this month had produced a mid-range headline inflation forecast of 8.5%, its highest level in more than two years. Romanian inflation has jumped from a post-communist low of 3.7% in March 2007, Romania’s first year in the European Union, on the back of higher global food costs, mounting wages and strong domestic consumption. All that prompted the central bank to order four consecutive interest rate rises in recent months, to 9.5% at present. Whereas demand-driven pressures are likely to remain, analysts and officials expected the headline figure to ease later this year thanks to slower food price inflation and by comparison with rapid price rises in the H2 last year.

Central bank governor Mugur Isarescu said last week he was “prudently optimistic” that recent interest hikes could help bring inflation closer to the bank’s target, somewhere around 5-6% in the H2 of the year. “The bank is of course unlikely to change its vision (in fighting inflation) following this data release ... the figure was expected. The 9.5% rate level is sufficiently high to allow for a reduction of inflation,” said Ionut Dumitru, head of research at Raiffeisen Bank in Bucharest.

Prices rose 0.7% on the month in March, with services prices recording the steepest rise at 0.9%. Food prices rose 0.6%, while non-food items were 0.7% up. In its latest inflation report the central bank forecasts December inflation at around 5.9%, well above this year’s 2.8-4.8% target range. It expected price growth to peak in March at 8.3%.

The INS said the European Union harmonised index was up 5.9% on the year. The indicator of prices excluding administered prices grew by 0.8% on the month in March. At 0730 GMT the lei (RON) traded a shade weaker at 3.6275 per euro against Friday’s close of 3.624. (Reuters)