Romanian inflation falls in Aug

Analysts said the sharp fall in August, before the main impact of lower food prices could be seen in coming months, signaled inflation would continue to decline, putting pressure on the central bank to halt raising interest rates. “We see the effects of good crops for fruits and some vegetables, but towards the end of the year we will also see the effects of strong cereal output,” said Rozalia Pal, head of macroeconomic research at UniCredit Tiriac Bank in Bucharest. “Inflation is on its way to hitting 6 or 6.5% at the end of the year. This is in line with central bank’s forecast and it may suggest the central bank is going to hold fire this month.”

Prices fell 0.1% on the month in August, with food costs rising slightly 0.2% after they fell 0.7% in July. Non-food items were flat, while services fell 0.9% in August, the Statistics Board said.

Analysts polled by Reuters earlier this month had produced a mid-range headline inflation forecast of 8.2% and a month-on-month figure of 0.1%. Inflation caught fire in Romania this year, rebounding from post-communist lows of 3.7% set in 2007 as soaring global food and energy prices added to pressures stemming from strong domestic demand. But with statistical base effects working in its favor, and a strong harvest this year, annual price growth could decline to as little as 6% by December, analysts say.

The central bank’s official forecast for end-year inflation is 6.6%, still above the target range of 2.8-4.8%. This could mean the bank will halt its tightening cycle, with rates remaining at 10.25%, analysts said. However, some still see pressure for higher borrowing costs stemming from loose fiscal policy later this year. “We might still see a rebound in inflation in coming months because of wage and pension hikes and uncertainties about global food and fuel prices, so I expect the central bank to remain hawkish,” said Elisabeth Gruie, currency strategist at BNP Paribas in London.

Elsewhere in the region, Czech inflation eased to 6.5% in August, the lowest level since December last year and Poland’s central bank head said price growth peaked last month. (Reuters)