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ING: Serious Flooding In Romania Likely To Impact Inflation, GDP

The serious flooding in Romania, which killed 20 people so far and is expected to halve the wheat output, is likely to put inflationary pressure on the country’s economy and negatively affect the gross domestic product, ING said in a report Wednesday.
ING: Serious Flooding In Romania Likely To Impact Inflation, GDP
30 iun. 2010, 12:28, English

Beside the recent increase in the sales tax to 24% from 19%, inflation „may surprise on the upside starting in August,” ING said. „GDP should be negatively affected also.”

An option to offset what looks like a bad agricultural year would be imports, ING notes, adding that given the central bank’s policy, imports are becoming more expensive.

„Depending on how bad the situation gets and given the VAT hike, we may see inflation climbing significantly in Romania more than a year from now,” the report said.

According to ING analysts, the central bank is likely to leave its key rate unchanged at 6.25% at the monetary policy meeting Wednesday, given the growing political instability after the VAT raise and a possible spike in inflation following the move.

The VAT increase „should have a substantial impact on inflation and makes it difficult to justify rate cuts,” ING said. „Moreover, the central bank may want to wait and see the actual impact on inflation.”