Inflation burns holes in pockets

The increase in prices continued to make holes in the Romanians' pockets in November as well, inflation growing by 0.93% against October on the background of the 1.2% rise in foodstuff prices, 0.6% in non-foods and 1.2% in service tariffs. Annual inflation reached 6.67% at the end of the first eleven months of 2007.

In this context, economic analysts estimate an inflation of up to 8% for the first months of next year and consider as imminent the increase in the monetary policy interest rate by the central bank, which may determine a strengthening of the leu. In November, the most important increases in prices were in the service sector, 1.21 percentage points, according to data from the national Institute of Statistics. The price increase in services was stimulated by the depreciation of the leu against the euro in November, when the national currency lost 5.47% on the European one.

Thus, in the eleventh month, the advance of the price in services exceeded the one in foodstuffs, their prices growing by 1.17%. Within the food sector, bread price increased by 2.19%, vegetables and canned vegetables by 1.42%, and advance stimulated by beans and other leguminous plants (2.59%).  As regards non-foods, they saw an increase by 0.61%, an advance supported by fuels (1.63%), thermal energy (2.61% and vehicles and spare parts (1.82%).

This year's high inflation level and the forecast for the first months of next year, which boost inflation to a level of 8 percentage points, make inevitable the decision of the central bank to increase the key-interest rate, analysts think. In case the interest rate growth is important enough, this may be reflected in an appreciation of the leu.

"There is a growing expectation that the reference interest rate may increase by 50 base points in January and, simultaneously, that the national currency may appreciate", declared the Chief Economist of the BRD - Groupe Societe Generale, Florian Libocor. The chief analysts of the ING BANK Romania, Florin Câtu, and the Raiffeisen Bank, Ionut Dumitru also anticipate an increase of the monetary policy interest rate. Cîtu says: "The BNR is compelled to raise the interest if it wants to meet the inflation target for 2008. The monetary policy is now relaxed and, in order to have an effect, it must be more aggressive."

Curierul National