The rate of inflation in December was 0.6%, meaning that for the whole of 2004 the consumer price index fell to 9.3% from the 14.1% seen in 2003, according to the National Statistics Institute.
The result comes close to the official target of 9%.
As a result, beginning with this year Romania will enter the group of economies that are close to normality, having "official" price increases below 10%. However, neither consumers nor the banks appear to believe this - consumers are feeling the effects of higher price rises for food and consumer goods, while banks are not bringing down lending rates.
"The rate does not seem realistic to me. If inflation is at 9%, then why is the lending rate from the banks 12%? It's clear that inflation in December dropped at a time of appreciation for the local currency. However, consumers did not get any price reductions," said Liviu Voinea, executive manager with Grupul de Cercetare Economica Aplicata (The Applied Economic Research Group).
December's rate of inflation of only 0.6% represents a record for this month compared with recent years - in December 2002, prices rose by 1.5%, while in the same month of 2003, prices increased by 1.2%.
"This is the first time inflation has gone below 10%. The target was 9%, but we consider 9.3% close enough to say we've hit the target, given the +/-0.5% margin," explained Cristian Popa, National Bank vice-governor.
Due to the delay of reforms - privatisations and the attraction of foreign investments - it has taken Romania as much as 15 years since the Revolution to reach an inflation rate below 10%. Hungary and Poland, for example, achieved this six years ago in 1998.
Bringing inflation under 10% would not have been possible last year had the European single currency not weakened against the ROL by more than 3%.
"Inflation in Romania has three components: a structural component, which is yielded by arrears; an imported component through the devaluation of the exchange rate; and a psychological component. Given the appreciation of the ROL against the euro and the tempered forecasts for inflation, we can say that what we have now is merely structural inflation," added Voinea.
According to Voinea, inflation will only be brought down when competition becomes real. "On many markets there is an acute lack of competition, which is reflected in prices. For instance, petrol in Romania is more expensive than in Spain, which is completely unnatural. Similarly, the level of competition in the banking sector is low, meaning interest rates are high. Special arrangements between market rivals are possible, and this leads to monopoly prices," Voinea explained.
sorin.pislaru@zf.ro ; razvan.voican@zf.ro
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