Romanian Rising Inflation No Longer A Temporary Shock - ING

04.11.2011 By Florentina Dragu

Romania’s rising inflation following a 5 percentage point increase in the sales tax operated last year can no longer be regarded as a temporary shock and the central bank may have to hike its key interests to curb inflation, ING Bank said in a report Monday.

Romania's rising inflation following a 5 percentage point increase in the sales tax operated last year can no longer be regarded as a temporary shock and the central bank may have to hike its key interests to curb inflation, ING Bank said in a report Monday.

The consumer price index rose 8.01% in March from the same month a year earlier, accelerating from the previous month's 7.6% increase. It was the highest figure since August 2008.

"An upward pressure on interest rates seems probable, because the inflated prices following a higher value added tax level can no longer be classified as a temporary shock, as the central bank had suggested," ING said in its report.

ING estimates the annual inflation could top 8.4% at mid-year, while the year-end rate is expected at 5.7%, high above the central bank's target.

The central bank targets an annual inflation of 3% at the end of 2011, plus/minus one percentage point around the band. The bank recently revised upward its forecast on the year-end inflation to 3.6% and is expected to announce a second revision in the coming period, due to global surging prices for energy and food items.