Romania Cigarette Prices Most Impacted By Excise Duty Hike In 2010

Romania currently levies an excise duty of EUR64 per 1,000 cigarettes and is supposed to raise it to EUR74 per 1,000 cigarettes as of January 1, 2010.

Tobacco and cigarettes account for 4.6% weight in the CPI basket, which represents a significant influence in the annual inflation, of over two percentage points.

According to JTI Romania corporate affairs manager, Gilda Lazar, after the excise hike, over 80% of a pack of cigarettes’ price would represent taxes to the state.

The excise level is set in Romania by transforming amounts in euros into leu equivalent at the official exchange rate of the first working day of October in the previous year. Thus, the excise for 2010 will be computed at RON4.2688 per euro, the exchange rate announced on October 1, 2009 by the European Central Bank. In 2009, the excise was set based on an exchange rate of RON3.7364 to the euro.

According to the main oil companies in Romania, fuel prices might grow next year by over 5%, as the excise will be calculated at a higher leu-euro exchange rate and its level might be also raised, while an increase of international oil quotes might also trigger a boost in fuel prices.

Nevertheless, the impact of the excise hike would be threefold lower compared with that on cigarettes.

Thus, excise duties on unleaded gasoline will be hiked to EUR452/ton, from EUR436/ton in 2009, while the duties levied on diesel oil will reach EUR347/ton, from EUR336/ton currently. Fuels have a 6.78% weight in the CPI basket.

On the other hand, the excise duties levied on luxury products will no longer be applied next year.

Price adjustments unrelated to excise hikes are also expected next year, among which that of electric power.

Thus, electric power prices will hike by 3.5%-4% as of January 1, according to inflation rate. Electric power has an over 5% weight in the CPI basket.

Nevertheless, Romania’s energy regulatory authority ANRE said it would keep unchanged household and industrial gas prices as of January 1, 2010, and may change the electricity prices according to inflation rate.

Romania’s inflation will exceed again the upper limit of the central bank’s target interval for 2009, of 2.5%-4.5%, but the disinflation process will continue next year, according to financial analysts polled by MEDIAFAX.

The higher inflation in 2009 is due to factors the central bank cannot control such as the higher tobacco excises, according to analysts.

Nevertheless, the analysts believe the inflation will most likely range within the variation interval set by the central bank for 2010.

Romania’s consumer price index rose by 67 basis points on the month in November, driven mainly by higher tobacco and fuel prices, while the annual inflation widened to 4.65%, ending an eight-month deceleration period.

Cigarettes and tobacco prices rose 5.48% on the month in November, the highest increase in the non-food sector, while fuel prices increased by 1.66%.

Romania’s central bank targets an annual inflation of 3.5% at the end of December, with one percentage variation band around the target. A similar objective was set for 2010.