Annual inflation in October reached a new all-time low, of 4.8%, as vegetable prices dropped by more than 4%, taking the summer trend further.
Consumer prices rose by 0.2% in October and by 4.8% over the past 12 months, the lowest value reported over the last 17 years. Inflation hit another all-time low, decreasing, for the first time, below the target of the National Bank of Romania, of 5% plus or minus one percentage point.
Vegetables registered the biggest price cuts in October, more than 4%, continuing this summer's trend.
Against June 1st, vegetables are now almost 27% cheaper, after five price cuts in a row. Vegetables weigh over 4% in the monthly consumption basket, just like dairy products, and half the weight of bread and meat, according to National Statistics Institute data.
Owing to this relatively high weight, vegetables managed to slow down inflation during the entire summer. Potatoes alone became 10% cheaper in October.
Moreover, vegetables are now 15% cheaper compared with the beginning of the year.
Though their prices may rise in November and December, the 15% price reduction in the first 10 months is still a first time.
"Inflation slowed down beyond our expectations," commented Ion Ghizdeanu, chairman of the National Forecasting Commission.
He projected 6% inflation for this year this spring, while NBR governor Mugur Isarescu estimated inflation would be of around 6.8%.
Figures released by the Statistics Institute also came as a surprise for Florian Libocor, financial analyst with BRD SocGen. He says the market forecast 0.4% inflation in October and 5.1%-5.2% for the entire year.
As regards vegetable price drops, he believes those may be triggered by imports.
"In terms of food products in general, this year's imports may be the explanation behind price slashes, due to the origin and also to the nominal appreciation of the RON, which made imports cheaper," says Libocor. He believes domestic supply is below the level of demand and this is why some imports are needed.
At the same time, the NBR believes vegetables became cheaper because of "a good agricultural year", though statistical data referring to the agricultural yield are not as convincing as data on inflation.
Agricultural yield in the first half was the same as in the corresponding period of last year, when floods wreaked havoc on crops and bigger imports were needed.
For the time being, the official projection on yearend inflation stands at 5.5%, but it "is probably pessimistic given the latest data released by the Statistics Institute," says Ghizdeanu.
The NBR set an inflation target of 4%, plus or minus one percentage point for 2007.
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