BUSINESS

Inflation boomed in January due to unprecedented price hikes

According to INS data, electricity, fresh fruits, potatoes and cigarettes were in the top of price hikes last month.

The annual rate of inflation in January 2013 was 5.97 pc, higher than the 4.95 pc announced at the end of last year, according to data released yesterday by the National Statistics Institute (INS). In January 2013, prices advanced by 1.34 pc against December 2012, against the background of a 1.24 pc price increase of food products, while the prices of nonfood goods went up 2.04 pc and those of services dropped by 0.13 pc. The average monthly rate of inflation in January was 1.3 pc, compared to 0.4 pc in the first month of 2012.
Comparing the figures used last year to current ones, one can notice a slight increase of the share held by food goods and a slight decrease of nonfood products and services. During January 2012 – January 2013, the most significant price increases were registered by food goods (7.19 pc), those of nonfood products advanced by 6.19 pc and services also went up 3.1 pc.
The National Bank of Romania (BNR) forecasts for the second quarter of this year a maximum annual inflation of 5.9 pc. The governor of BNR announced last week that the Central Bank keeps unchanged the inflation forecast for the end of this year at 3.5 pc and expects it to reach 3.2 pc at the end of 2014.
According to INS data, the price of electricity increased in January by 10.38 pc compared to December 2012, those of potatoes advanced by 8.34 pc, those of fresh and canned vegetables by 8.34 pc, fresh fruits went up 4.61 pc, tobacco and cigarettes by 3.56 pc. Significant price increases were reported for beans and other vegetables (+3.12 pc), while the only product that went cheaper was sugar (-0.11 pc). In the nonfood goods category, where prices advanced by 2.04 pc in total last month, the highest increases were registered – besides electricity and tobacco – by newspapers, books and magazines (+1.7 pc), while the prices of automobiles and spare parts decreased by 0.38 pc and those of thermal energy also went down 0.21 pc.
The prices of services decreased by an average 0.13 pc. The highest increases were registered by water, sewer, sanitation (+1.59 pc), while the prices of telephone communications and air transport registered the most significant decline rates (-0.36 pc and -0.35 pc respectively). Other categories where prices dropped in January 2013 were cinemas, theaters, museums, education and tourism (-0.05 pc).
Analysts: Prices increased beyond expectations

The figure announced by the INS is bad news for economic growth prospects. We expected prices to advance by 5.5 pc in average this year, compared to 3.3 pc in 2012, and the increase of salaries in the private sector to slow down until reaching an average rate of 3.7 pc, compared to the average of 4.4 pc in 2012, reads a note to customers sent by the chief economist of ING, Vlad Muscalu, quoted by Hotnews.ro. The volatile prices of food products kept increasing above expectations, the chief economist of ING explains. The average monthly inflation rate was 1.3 pc in January, higher than our forecast and also than the consensus of the market (0.8 pc), believes Eugen Sinca, the head of the research team of BCR. The exchange rate used in calculating excise duties and the gradual increase of the price of electricity because of a support scheme for green energy were the main drivers of this evolution, Sinca adds. In his opinion, the negative effects of last summer’s draught are still “visible” in inflation and the price decreases in the category of services is rather due to the evolution of the exchange rate. At the same time, Raiffeisen Bank analysts expect the annual inflation rate to remain a touch below 6 pc yoy in the first half of the year before decreasing towards 4 pc yoy in December. While elevated, the current level of inflation rate is fuelled to a large extent by transitory factors outside the control of monetary policy. “(…) So, limiting second round effects and anchoring inflationary expectations is the best the central bank can do at the moment. (…) We still see room for the central bank to ease gradually liquidity conditions in the money market in the next period as long as the leu does not face important depreciation pressures.  Elevated inflation rate might limit downwards move in yields for T-bonds following the rally in December-January”, said Raiffeisen Bank analysts.

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