EVEN THOUGH THE PRICE OF GAS PAID BY INDUSTRIAL CONSUMERS HAS GONE THROUGH THE ROOF, The NBR doesn"t expect inflation to grow

• Analysts disagree with this prognosis

The Romanian National Central Bank (NBR) will keep inflation under control, despite the fact that the price of natural gas for industrial consumers has increased 10%, said Adrian Vasilescu, advisor to the Governor of the NBR: "It will be very difficult, but we will succeed in keeping inflation within the forecasted level of 5%". He said that even though some prices may increase due to the raise the tariff for natural gas produced domestically, effects in the industry will be mostly emotional: "Costs will be higher, but the issue is far more complex. Companies should find a way to adjust their costs, and cut some of them when others increase". The representative of the NBR also said that he also has an answer for those who would speculate this occurrence - the fact that the consumption rate remains negative.

After saying that in July, inflation will fall, as the basis effect will change, following last year"s VAT raise, Adrian Vasilescu considers that the increase in the price of natural gas for industrial consumers will generate a "brief, low intensity shock" on inflation.

The NBR"s confidence in itself is commendable, but the reality of the last four years has proven the opposite: that the NBR failed to meet any of its inflation targets, between 2007 and today. The main reasons were the rise in the price of food staples, and fuel.

• Liviu Voinea: "We will continue to have the highest inflation in the EU"

However, Liviu Voinea, the chairman of the Applied Economy Group (GEA), is far more pessimistic, and predicts that we will continue to have "the highest inflation rate in the EU" this year as well. He expects inflation to get close to 10% at the end of the year, as the increase in the price of gas for industrial consumers will have a significant effect on the consumer price index, of 1 to 2%: "Even though at first glance, the rise in the price of natural gas will not be reflected in the consumer basket, since it is calculated using the price of gas paid by households, which is lower, the prices of industrial products, which will be the first to be affected, will eventually impact consumer prices. The impact will vary from one sector to the other, depending on how important gas if for each of them".

Liviu Voinea said that exports will be affected as well, because they will become more expensive, which will make them less competitive.

• Rudniţchi: "The first effects will be noticed in autumn"

More expensive products and inflationary pressures - these will be the effects of the increase in the price of natural gas used in the industry - as stated by some of the economic analysts that we contacted. Some however, were less worried than others.

Analyst Constantin Rudniţchi, spokesman for the Romanian Chamber of Commerce and Industry, said that the first effects of the raise of the tariff for natural gas used by industrial consumers will be noticeable in autumn: "We need to be aware that natural gas has a lower weight with manufacturers than gas or diesel fuel. Therefore, it will also affect inflation less. Also, not every sector uses it heavily. The most affected will be the makers of chemical fertilizers, and players in the bakery and milling products sector will be partially affected, as will those in the energy sector that use gas-based plants. The first effects however, will become apparent in autumn, because bakers will have to bear part of these increases, and thermal energy isn"t used in summer. At that time, we will see prices increase 3 or 4 percent". He stressed however another aspect - the fact that the current method of calculating the price of gas "takes us back 10 years ago, when he had cross-subsidies". Constantin Rudniţchi says that by delaying a gradual increase, eventually, the price of natural gas for household consumers will need to be raised abruptly, to match the one paid by industrial consumers.

• Niculae: "We won"t be able to sell our products on the foreign markets"

Whereas in the milling and bakery industry prices may not increase more than 2%, according to Aurel Popescu, the president of "Rompan", the chemical industry will be a lot more affected by this increase in the price of natural gas. Ioan Niculae, the president of "InterAgro", said that natural gas accounts for 75% of the output cost of chemical products: "With these kinds of price increases we will eventually be force to shutter the plants. We"re the only country where fertilizer makers don"t get a lower price for natural gas. Once the price of imported gas is raised, our costs will increase by about 15%. We will have to raise our prices as well and we won"t be able to sell our products on the foreign markets, and my plants export 90% of their output". Ioan Niculae thinks that this increase in the price of natural gas is unjustified.

The representatives of the National Authority for the Regulation of the Energy Market (ANRE) are saying that there are several reasons behind the decision to raise the price of natural gas paid by industrial consumers by 10% (a decision which the ANRE made at the end of last week): the increase in the price of imported natural gas from 290 dollars/1000 cubic meters, which is the price used in the formula the last time the prices were changed, to the current level of 460 dollars/ 1000 cubic meters, the change of the structure of Gas Unit Cost (CUG) and the need to create the stock of natural gas, in order to guarantee the safety and continuity of the natural gas supply for all consumers in the winter of 2011-2012.

Frank Hajdinjak, the managing director of E.ON Romania, recently said that, without an increase in the price of natural gas, there would be serious issues with providing a steady supply of natural gas this winter: "We need to have a moderate price increase, which would be bearable for consumers. At any rate, without an increase in prices, we will have very serious problems, which will result in disruptions in the supply of gas to consumers". At the time, he mentioned that the rise of the price of oil on the foreign markets would be felt in Romania, and would result in an increase in the price of imported natural gas.

According to the ANRE, the average price for imported natural gas is expected to reach 460 dollars per cubic meters, with market analysts expecting that by the end of 2011, the price of imported gas will reach about 500 dollars per thousand cubic meters.

It is worth mentioning that in January, imported gas cost 399 dollars per thousand cubic meters, and in April the price increased to 431 dollars per cubic meters.

The Gas Unit Cost for non-household consumers is calculated based on a mix structure which contains 77% domestically produced gas and 23% imported gas, according to the ANRE. The Gas Unit Cost intended for household consumers is calculated based on a structure of the mix which includes 89% domestically produced gas and 11% imported gas.