Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Monday, November 12, 2007

Romanian Inflation October 2007

Romania's inflation rate rose again in October, this time to a 16- month high of 6.8%.

In fact inflation accelerated upwards this month from the 6 level registered in September. Food costs, which have been rising in Romania as in many others countries played a big part in this months acceleration - rising 9,52% year on year - and a government decision to increase natural gas prices by 3.7 percent in October obviously didn't help. At the same time the leu, whose steady rise in the earlier part of the year helped slow inflation is now declining, and has in fact declined 6% against the euro in the past three months, pushing up in the process import prices, and the leu cost of all those products and services which are priced in euros.

The ex-food price index rose at a yearly rate of 4.7%, up from a 4.1% rise in September. The EU harmonised price index rose by only 4.6%, and has been much tamer in recent months than the home grown Romanian one, but this in many ways only reflects the different composition of the typical consumption basket in Romania, which is very different from that in many of the wealthier European societies, since food is a much more important part of the household budget in Romania.

Now the most logical conclusion to draw from this state of affairs would be that the National Bank of Romania is surely about to raise interest rates, since they specifically cited higher-than-expected inflation as the grounds for their Oct. 31 to raise the key interest rate to 7.5% from 7% and normally in the present climate any likelihood of an interest rate rise in the offing should send a currency upwards, so what is surprising to note is that on the back of the announcement the leu fell sharply today. In fact the currency has been falling since the end of October, but it was definitely given another firm shove downwards by today's news.

No comments: