GEA Leader Liviu Voinea: Statistics Keep Inflation Under Control

The inflation for October is below expectations, despite an attack on the leu which should have had a significant effect on the inflation rate, according to Liviu Voinea, President of the Applied Economics Group (GEA). He believes that the National Statistics Institute (INS) is the one that is keeping inflation under control in Romania. In October, the annual inflation rate reached 7.39%, up by 0.6% from the previous month, according to INS data. Non-edible products drive the inflation rate with 7.58%, followed by services (7.92%), especially telephony and air transportation. Despite a significant increase in the price of oil, the price of fuel only decreased by 0.31% from the previous month. INS also reported that the price of foodstuffs gained 6.91% from the previous month, the main drivers being milling and bakery products, vegetables, and dairy products, which rose by more than 3% compared to the previous month. The annual inflation rate for this year could reach 7%, or even more, according to Catalina Constantinescu, an analyst with RBS Romania. "The excessive volatility of the exchange rate and the high quotations in October may have prompted producers and distributors to act faster and more aggressively, because it usually takes more time to translate exchange rate fluctuations into price changes," she said. The inflation rate forecast lowers the chances of seeing a cut in the key interest rate of the National Bank (BNR) in the near future, according to Constantinescu, who also believes that the key rate is also not likely to increase. "The key rate could be decreased in February at the earliest," she said. In her opinion, the inflation rate is likely to decrease fast in 2009, because the effects of the international financial crisis and more restrictive lending terms will bear a substantial impact on consumption and therefore on prices. Liviu Voinea believes it is hard to estimate how the inflation rate might fluctuate until the end of the year, but he, too, is convinced that it will decrease in 2009 as a result of lower consumption. Nevertheless, budget policies and the price of utilities are serious threats to a low inflation rate. Lucian Anghel, Chief Economist of BCR, believes that the annual inflation rate could be 6.2% following the cut in the price of fuel sparked by the U.S. economic decline. In his opinion, the cheaper fuel prices will need up to two months before having effects in Romania. The electoral decision to postpone the increase in regulated prices as well as BNR"s restrictive monetary policy will also contribute to deflation. The decrease in the Euro Zone inflation rate to 2.8% in December (from 4%) could have a positive effect on Romania, because the inflation of prices for important products would be lower. For 2009, Anghel sees important risks related to the agricultural output, corroborated with the low inflation in the second half of this year.