Central bank is not optimistic about the return of inflation rate within the target.
Inflation, one of the criteria set under the EUR 20 bln foreign financing agreement between Romania and international lenders, co-ordinated by the International Monetary Fund, as well as an important aspect with regard to joining the euro-zone, has exceeded the estimations of both the central bank and analysts in the field.
Data the National Statistics Institute (INS) released yesterday says the annual inflation rate grew from 6.99 per cent in January to 7.6 per cent in February, with the monthly inflation standing at 0.77 per cent following food, mainly potatoes, price rises. Economic analysts were expecting an average price rise by 0.5 per cent and an annual inflation rate of 7.3 per cent in February. The annual inflation rate has exceeded the margin of variation of 7.2 – 7.5 per cent Romanian National Bank (BNR) governor Mugur Isarescu was expecting to see until the summer. In February, food prices went up by 1.76 per cent overall, pushed by vegetables (up 8 per cent) and especially potatoes (up by more than 10 per cent compared to January). In fact, last year, too, potatoes registered the biggest price rise by 45 per cent. Bread, with an important weight in the consumption basket, also influenced inflation, with prices going up by 2.3 per cent in February compared to January. Another important price growth was reported for fresh fruits – 4.1 per cent.
Monthly rises by over 2 per cent were also reported for eatable oil, flour, cow’s milk and sugar. The only food products that became cheaper last month were eggs (down 2.2 per cent). The same INS data also reveals the fact that non-food prices and service tariffs registered a small increase compared to the previous month, by 0.27 per cent and 0.03 per cent respectively.
BNR TO KEEP KEY-INTEREST AT 6.25 PC, RON WILL APPRECIATE
BNR head Mugur Isarescu stated during an economic forum on Wednesday night that the central bank is not optimistic about the return of inflation rate within the targeted limits, but counts, among other things, on oil international quotations decreasing. BNR in February corrected its 2011 inflation forecast upwards from 3.4 per cent to 3.6 per cent and estimated an annual inflation rate of 3.2 per cent by the end of 2012. The BNR-set inflation rate target for 2011 and 2012 is 3 per cent plus/minus one percentage point. Analysts expected an annual inflation rate of only 7.3 per cent, according to a survey recently published by the Association of Financial and Banking Analysts and carried out among approximately 70 members. Estimations made varied from 6.5 per cent to 7.5 per cent. Raiffeisen analysts believe the BNR inflation target or 2011 is very optimistic and anticipates that the indicator will be even higher than the bank’s own forecast of 4.5 per cent, reads a note the bank sent out on Thursday. ‘The rise in prices registered in the last few months has been surprisingly big, with supply shocks (food and fuel price growth) being the main factors accelerating inflation. Given the current circumstances, the central bank forecast of February indicating an inflation rate of 3.7 per cent at the end of the year seems over-optimistic. We see an important risk that inflation may even be higher than the 4.5 per cent we anticipated at the end of this year’, Ionut Dumitru, Raiffeisen Bank chief-economist told Ziarul Financiar.
At the same time, ING notes in an analysis that the chance the BNR target to be reached as far as inflation is concerned has dramatically decreased. In the same context, Raiffeisen expects interest rates to be higher than expected in the next period. The bank had also expected that BNR would cut the key-interest rate from 6.25 per cent to 5.75 per cent in the second half of 2011, but now believes the probability of that is close to zero. Raiffeisen thinks the current key-interest will stay unchanged this year, as BNR’s top priority will be keeping inflation under control. Both banks’ analysts think the RON may appreciate in the upcoming period.
XTB: CENTRAL BANK’S INTERVENTION, NECESSARY IF OIL PRICE RISES
Other oil-exporting countries in the Middle East are not safe from risk as yet, even if the effects of troubles in Libya on oil prices seem to have been contained for now. As there is, anyway, a temporal lag between rises in oil prices and fuel prices’ trends, even a steady price of crude oil does not preclude, in the short run, potential rises in the price of gasoline and petrol. Furthermore, if oil prices continue to rise, the corresponding rise in fuel prices could ripple, to a wider extent, into a range of products and services, and, in this case, according to the latest X-Trade Brokers (XTB) analysis, the National Bank of Romania (BNR) would have to intervene to keep inflation under control. “It already took action to back a stronger RON, but, in this scenario, it may have to raise interests. This would boost the speculators’ interest in the RON, but would reduce the economy’s potential for recovery,” XTB analysts argued.
COMPETITION COUNCIL WANTS TO EXTEND THE DEADLINE FOR FUEL REPORT
The Competition Council asked the Government to push back the deadline for the completion of its report on the Romanian fuel market, as it needs more time to compare its data with those of the National Agency for Fiscal Administration (ANAF), Realitatea.net informs. In January, ANAF drafted a report on fuel producers and providers, which finds that pump prices increased without justification during 2010.
On the other hand, although the price of crude oil stabilised these last few days, and the RON/EUR and RON/USD exchange rates went down, fuel prices still go up without reason, reads a press release of the National Union of Road Hauliers from Romania (UNTRR). The Union cannot allow transport companies going bankrupt, while oil companies score huge profits. “In this situation, we urge the Government to intervene and find solutions to stabilise the price of fuels, thus assuring the predictability needed to establish transport fees and balance the businesses,” the UNTRR release mentions.