Romania misses inflation target for the third time

• Chidesciuc, ING: "Romania missed the inflation target in 2009, even during a severe recession, when prices usually drop"

• In December, inflation rose to 4.74%

The Romanian National Bank missed its inflation target for 2009, for the third year straight, with prices rising 4.74% last year. The NBR"s target was 3.5%, give or take 1 pp (2.5-4.5%).

Macroeconomic analysts were expecting the failure to meet the inflation target for 2009, as the last time the NBR kept the inflation target was in 2006.

Nicolaie Alexandru Chidesciuc, chief-economist with ING Bank, said: "Romania missed the inflation target for 2009, even during a severe recession, when prices usually drop; this is a bit unusual". In other countries the opposite happened, as inflation dropped below the set target, the quoted analyst said. He added that this proves that the ability of the NBR to control prices is rather limited. Mr. Chidesciuc considers that Romania won"t be able to meet the inflation target in 2010 and 2011 either.

Lucian Anghel, chief-economist of the Romanian Commercial Bank (BCR), said: "If the price of tobacco hadn"t increased by 30%, the inflation would have been at 3%". In his opinion, Romania may meet the inflation target for 2010, but it all depends a lot on the managed prices.

Consumer prices increased 0.32% MOM in December 2009, as prices of non-food goods increased 0.54%, and the foodstuff prices rose 0.34%, whereas prices for services dropped 0.25% on average, according to the National Statistics Institute (INS).

In 2009, foodstuffs accounted for 37.58% of the consumer basket, with non-foodstuffs accounting for 44.05%, and services represented 18.37% of the consumer basket.

In December, the largest price increases were seen in eggs (4.63%), tobacco and cigarettes (3.58%), vegetables and canned vegetables (2.96%), potatoes (1.24%), water, sewage and sanitation (1.13%). Fuel dropped 0.29% in the December.

Prices of cars and spare parts decreased 0.78%, in the course of the same month.

Concerning services, rents dropped 0.19% in December, but increased 2.46% over the year.

Air transport and telephone bills dropped 1.43% in November.

The average increase in consumer prices between January and December 2009 over the previous year - an indicator which is important as it is one of the nominal criteria for convergence to the Eurozone - dropped to 5.6% in December, from 5.7% in November, and inflation determined based on the Harmonized Consumer Price Index dropped to 5.6% from 5.7% as well. The NBR began targeting inflation in 2005 and only met its target in 2006, when the annual inflation rate was 4.87%, below the announced target of 5% give or take 1 pp..