Bloomberg News

Romanian Inflation Rate Drops to Record Low on Food Prices

February 14, 2012

(Updates with breakdown, comments, leu from fifth paragraph.)

Feb. 13 (Bloomberg) -- Romania’s inflation rate dropped faster than economists estimated to a new post-communism low in January, as faltering economic growth and a bumper 2011 harvest limited price increases.

The annual rate fell to 2.7 percent from 3.1 percent in December, the National Statistics Institute in Bucharest said today by e-mail. The median estimate of 14 economists surveyed by Bloomberg was for a 3 percent rate. Prices advanced 0.4 percent from the previous month.

Policy makers have cut the benchmark interest rate three times since November to a record-low 5.5 percent to buoy the economy as inflation slows and Europe grapples with a debt crisis. Rates are being lowered “in small steps to keep from harming the equilibrium,” Governor Mugur Isarescu said Feb. 7.

“Even though we expect inflation to hit new record lows in the first half of this year, which is in line with the central bank’s view, it is worthwhile reiterating that a further slowdown of inflation will mainly be the result of a favorable base effect in the first half while the monthly rates of inflation could be elevated,” Erste Group Bank AG analysts said in a note to clients today.

The Romanian leu was almost unchanged at 4.3460 per euro as of 10:41 a.m. in Bucharest, while the Bucharest Stock Exchange’s benchmark BET Index rose 0.8 percent to 5,090.37 points.

Price Targeting

The central bank is targeting price growth of 2 percent to 4 percent. It raised its 2012 inflation forecast to 3.2 percent from a November estimate of 3 percent, citing possible increases in food and energy prices, Isarescu said. The bank met its inflation goal for the first time in five years in 2011, when the rate fell to a record-low 3.1 percent.

Food-price growth eased to 0.1 percent from a year earlier in January, compared with 0.95 percent growth in December, on falling vegetable prices, the institute said.

Non-food cost growth slowed to 4 percent from a year earlier, driven by lower electricity and heating costs, compared with 4.45 percent in December, according to the institute. Service-price growth accelerated to 4.7 percent from 4.2 percent the previous month, on rising phone and transport prices, the institute said.

“Regarding our inflation outlook ahead of this release. we looked for a favorable base effect to drive inflation lower over the coming months -- taking it below 2 percent during March-May -- before food prices push higher in the second half, in the region of 4 percent,” ING Bank Romania SA economist Vlad Muscalu wrote in a note to clients. “We are expecting the central bank to keep the rate unchanged at the next meeting and we think these expectations will be largely maintained given the hints coming from the central bank.”

--With assistance from Barbara Sladkowska in Warsaw. Editors: Andrew Langley, Eddie Buckle

ROCOPYOY@US <Index> ROCOPMOM@US <Index>

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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