Inflation will go down to the fluctuation interval proposed by the National Bank but not before the first three months of 2007, Florin Georgescu, first vice-governor of NBR said yesterday.
The inflationary target will be reached as late as 2007, when it will be at 4%, the first vice-governor of the NBR stated yesterday during the "Banking on Romania" seminar organised by British daily Financial Times and The Banker magazine in Bucharest.
"This entails outstanding resolve and maintaining a tight control over cash," explained Florin Georgescu. The NBR first vice-governor added the main influences on prices would come from the increase in the utility rates and excise duties in the upcoming period. At the same time, the crop in the agriculture sector will influence the volatile product prices (fruit and vegetables above all i.e.).
Other than these two factors, the introduction of the vice tax in May led to a new rise in the price of cigarettes and fuels, which drove monthly inflation up to 0.6%. Further rises in the prices of the products subject to excise duties (cigarettes, spirits, fuels etc.) are expected in July as a result of a new increase in such duties.
"The recent vice tax, albeit a fiscal measure, also made an impact on inflation, generating pressures on the supply side. The impact, however, was smaller than anticipated," Georgescu commented.
The increase in the budget deficit scheduled for this year to a figure of 2.5% of GDP (from the 0.5% of GDP initially estimated before the first adjustment) could put pressure on inflation through the rise in certain salary expenses.
As far as the budget deficit is concerned, Georgescu did not comment on the inflationary impact of this measure. He said that upping the budgetary deficit to 2.5% of GDP had to be factored in, because it could lead to rising domestic demand and implicitly to higher prices.
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