Romania Nov CPI +0.93%MM, +6.67%YY

Romania’s consumer price index rose 0.93% on the month in November, on higher prices for food and services, and analysts say the central bank may hike the key monetary policy rate in order to touch next year inflation target.

 

The annual inflation rate stood at 6.67% in November, the National Institute for Statistics, or INS said Tuesday.

 

"Expectations about a new key rate hike in January are increasing, as well as the expectations about the appreciation of the Romanian currency leu,” BRD-Groupe Societe Generale chief economist Florian Libocor said Tuesday.

 

Libocor expects the central bank to increase the key monetary policy rate by 50 basis points to 8%.

 

ING Bank Romania analyst Florin Catu, and Raiffeisen Bank analyst Ionut Dumitru also expect the central bank to up interest rates.

 

"The central bank must increase interest rates if it plans to bring the 2008 inflation within the target. At the moment, the monetary policy is relaxed and must become more aggressive in order to come into effect,” Catu said. “I believe a key rate hike will be made gradually,” he added.

 

Analysts expect the consumer price index to end at 6.5%-7% in 2007 and say the index might rise to 7-8% in the first quarter 2008.

 

In November, the inflation reported a slight slowdown against October when prices rose by 0.97% on the month. Average inflation in November stood at 4.7%.

 

The INS said food prices rose by 1.17% on the month in November, while prices for services were up 1.21% on the month. Non-food prices increased by 0.61% on the month.

 

The Romanian central bank has set an inflation target of 3% to 5% with a midpoint of 4%. But it expects the index to exceed this target by the end of the year and reach 5.7%.

 

Romania’s Prognosis Commission sees inflation at 6% at the end of 2007 and 4.5% next year. The central bank’s 2008 inflation target stands at 2.8%-4.8%.

 

"The annual inflation in the last quarter of 2008 could be lower, if the agricultural year proves normal, and food prices stabilize. If the country would be again hit by drought or floods, inflation might return to double-digits next year,” Dumitru said.

 

In 2007, food prices, which account for more than a third of the CPI rose by almost 10% on the year in November, following a severe drought, which has extensively damaged the Romanian crops.