Romania Ctrl Bker Says 2009/2010 Inflation Fiscal In Nature; Pressures Remain

Romania’s high inflation over the past two years was induced by fiscal imbalances and upward pressures will persist as long as the relation between taxpayers and beneficiaries of social security programs remains profoundly uneven, central bank governor Mugur Isarescu said.

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"This is a vulnerability which may deteriorate at any moment, especially since we want to fight the causes leading to a high inflation and not the effects. The cause is not the actual increase in the value added tax, but the fact that, as social security contributions aren't enough, we need to provide the funds from other resources, other taxes," Isarescu told MEDIAFAX.

He said the high inflation in 2010 was largely due to increased excise duties for tobacco and oil items, together with a higher VAT rate and additional taxation.

Romanian inflation peaked to a record high of 7.96% in December 2010, after the government raised the VAT rate to 24% from 19% previously.

End-2009, the annual inflation came in at 4.74%.

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