Romania's inflation could slide below target in 2010 on recession, central lender counselor says

The inflation rate in Romania could temper next year below the level targeted by the central lender BNR of 3.5 percent plus or minus one percentage point, as the recession appears to be stronger than anticipated, declared Lucian Croitoru, counselor to the central lender (BNR) governor.

The deal with the International Monetary Fund (IMF) published at the beginning of this month by the institution shows that BNR needs to consult with the IMF if the inflation at the end of one quarter exceeds by more than 1 percent the respective target or if it is situated below the target's range.

The inflation target for the end of June stands at 6.4 percent, for the end of September at 5.7 percent and for the end of December at 4.5 percent. The IMF established an inflation focus point of 2.5 percent for year-end.

Croitoru showed that the private sector has so far done inefficient adjustments in term of costs, salaries and number of employees, on the basis of expectations regarding a fast economic recovery. 

On the other hand, he stressed that in the second and third quarter, the economy's contraction could be significant, even larger than in the first three months of the year.

"The 6.2 percent quota in the first quarter could be exceeded by a further shrink in the economy in the second and third trimesters," the BNR counselor said.

Data published by the country's statistics body INS point to a severe contraction in Romania's domestic demand for the first three months, of 13.7 percent on the similar period in 2008. Such an evolution slowed down consumer prices, economists say.

A consequence of the inefficient adjustment done by companies on the cost and labor occupancy rate side could be the acceleration of deflation, the hike of the unemployment rate and the drop of the average salary in the second part of the year.

NewsIn