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Friday, July 11, 2008

Romania Inflation Rises Again in June 2008

Romania's inflation rate rose in June, and pushed back up the two-year high reached in June. Inflation accelerated to 8.6 percent from 8.5 percent in May according to data last week fromthe Bucharest-based National Statistics Institute. On the month, prices rose 0.3 percent, compared with 0.5 percent in May.

Inflation has now accelerated from a post-communist low of 3.7 percent in March 2007 and the central bank has raised the main interest rate at every policy meeting since October - to the current level of 10 percent, the highest in the European Union. The bank, which next meets on July 31, has forecast inflation will slow starting in August.

Food prices are accelerating worldwide, pushing up inflation particularly in eastern Europe and other emerging markets, where people spend a larger portion of their income on food. Latvian inflation was 17.7 percent in June and Ukraine's was 29.3 percent.

Food prices in Romania were up 11.8 percent year on year while non-food items rose 5.9 percent. Services rose an annual 8.7 percent. And the immediate future looks non too promising on the inflation front, since gas prices are about to rise 12.5 percent and electricity prices 5.3 percent effective July 1. The government has also just raised the tobacco tax to 50 euros per 1,000 cigarettes from 41.5 euros.

However there are some positive trends, agriculture, for example. Farm output will probably double this year over 2007 due to better weather and increasing investment. Agriculture accounted for 9.4 percent of all investment in the first quarter, compared with 1.5 percent in Q1 2007.

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