Romanias annual inflation to hover close to 3% in next two years c-bank.

By bne IntelliNews May 9, 2012
Romania's headline inflation will hover close to 3% y/y in the next two years, remaining safely within the central bank's variation band of +/-1pps, data from the revised version of the bank's quarterly inflation report issued on May 8 indicated. The central bank targets annual inflation rates of 3% at the end of 2012 and of 2.5% from 2013 onwards. The adjustment in the inflation outlook from the previous report in November 2011 is marginal. The public wages hike due this year, which is the government's main decision with potential impact on price stability, is estimated to have a limited impact, governor Mugur Isarescu was quoted as saying by news agency Agerpres. As we reported, the government will hike public wages by 8% as of June and by another 8% later in the year. The adjusted CORE2 inflation calculated by the monetary authority is expected to also stabilise below 2% y/y over the forecast period starting as of Q1 this year. The main driver for CORE2 inflation remains the inflationary expectations, with a constant contribution of some 2.5pps over the two-year forecast period. The negative output gap has a negative contribution of around 1pps - slightly more in the first half of the period and less afterwards. The rest up to the roughly 2% CORE2 inflation, is contributed by import prices - re-assessed by the central bank in a way that would imply a maximum impact of some 1pps in Q3 this year and will have a weaker impact afterwards. The overall risk associated with the forecast is tilted upside and related to both foreign and domestic factors. The euro area sovereign debt crisis and the political uncertainty in the Middle East are the main external drivers. While further problems in the euro area would have opposite effects mediated by the wider negative output gap and weaker local currency, the net effect is believed to be negative (higher inflation). The Middle East tensions are transmitted through the oil price. The domestic risks are seen as more moderate in comparison with the external ones, even if typically the electoral year increases the likelihood of a fiscal slippage.

Romanias annual inflation to hover close to 3% in next two years c-bank.

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