Romanian Inflation Rate Rises to Highest in 20 Months

Romanian inflation accelerated in January at the fastest pace in 20 months as the weakening leu increased the cost of local services, including rent and phone bills, that are priced in euros, Bloomberg reported.

The annual rate rose to 7.3 percent, the highest since May 2006, from 6.6 percent in December, the Bucharest-based National Statistics Institute said in an e-mail today. The median estimate by 10 economists surveyed by Bloomberg was for a 7.1 percent annual rate. Consumer prices rose 0.9 percent in the month, compared with a gain of 0.6 percent in December.

The National Bank of Romania, which raised its main interest rate 1 percentage point to 9 percent last week, is concerned the inflation rate may exceed 8 percent in the coming months because of the weakening leu, wage increases, a consumer lending boom and increased government spending.

The leu's drop of almost 13 percent against the euro since August has made goods and services gauged in foreign currencies more expensive. In Romania, telephone bills, gas, rent and other items are quoted in euros and paid in lei.

The price of services, the area most sensitive to leu fluctuations, increased an annual 9.7 percent in January, the institute said. Food prices also rose an annual 9.7 percent because of a drought that destroyed a third of Romania's harvest last year. The cost of non-food goods increased 4.2 percent.

In January, rents rose an average of 1 percent from December and phone bills increased 4.4 percent, the institute said.

Pawlowski predicted the central bank, which has raised its main interest rate at three consecutive meetings, will continue raising it until it reaches 10 percent. The central bank's next interest rate meeting is on March 26.

Central bank Governor Mugur Isarescu raised his end-year inflation prediction on Feb. 7 to 5.9 percent from an earlier estimate of 4.3 percent.

Isarescu's forecast is above the 2008 end-year inflation target of 3.8 percent, plus or minus a percentage point. The central bank also missed the end-year 2007 target of 4 percent, plus or minus one point, as inflation rose an annual 6.6 percent in December.