There was a new burst of inflation in April as the monthly rate rose to 1.9%, a level unseen in the past year, while the yearly rate returned to over 10% after having remained below that level for a period of five months, say official sources quoted by Mediafax.
Both the market and the National Bank of Romania (NBR) were expecting the increase in the rate of inflation as a result of the substantial increase in excise duties and utility prices, but the final figure beat even the most pessimistic expectations of 1.2%.
The high level of inflation for April, 1.9%, has, in effect, thrown banking deposits in ROL into the black hole of losses, given that the average rate of interest paid on market fell to below 10% last month.
"This increase is beyond expectations, but it is too soon to start worrying before seeing what happens in the next few months and to what extent an upward inflation trend is true. As for the 7% target announced by central bank: that had already been called into question by the market. Also, this shows that the exchange rate is not such a powerful instrument in the battle with the inflation as the National Bank had expected," said Radu Craciun, ABN Amro Romania''s chief analyst.
In April, the NBR lost the bet to keep inflation in check by using the appreciation of the ROL to cut the prices of imported goods and thereby compensate for the price hikes brought about by the increase in the utility prices.
The ROL has gained some 13% since November of last year, though not sufficiently to alleviate inflationary pressures. The result indicates that importers are in no hurry to adjust prices in order to keep pace with the decline of the ROL/EUR exchange rate. The surge in inflation had been foreseen by the general expectations of increasing prices revealed by all the surveys conducted among managers across various sectors of the economy.
The central bank expected inflation to exceed 1% slightly at the worst, and in no way foresaw inflation reverting to two digits, 10.7%.
This means that instead of seeing a consolidation of the inflation-curbing trend, the economy is now suddenly being faced with inflation of more than 10%. Inflation fell below the two-digit threshold in November of last year, ending the year on 9.3%. The monthly consumer price index fell in the first three months of 2005 from 0.8% in January to 0.6% in February and 0.3% in March.
In this context, most interest rates on a range of placements - from banking deposits to government securities - are lower than inflation, meaning they are no longer capable of preserving the value of money invested, let alone provide even the smallest of yields.
The shocking increase in inflation seen in April only serves to confirm the pessimistic forecasts of analysts that had anticipated rising inflation due to the growth of the private consumption fuelled by the large amounts of money left in the people''s pockets following the introduction of the flat income tax. Average net salaries in March were 21% higher compared with the same month in 2004.
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