Romania: November Inflation Report
Overview:
The November Inflation Report sees a modest uptick to the inflation forecast for 2009 but no change for 2010; the former results only from tax increases having been brought forward. The underlying story of a large negative output gap bearing down on inflation remains, even if there have been some signs of economic stabilisation in recent months. Inflation fell sharply in Q3 and in October dropped further to 4.3%. It, thus, re-entered the 3.5% plus or minus 1% target range. Inflation is expected to move towards the lower bound of the inflation target in 2010 and in 2011 (the inflation target for 2011 has been set at 3.0%). The central bank has been cutting rates on this improving inflation story but has now halted as political noise threatens fiscal slippage, a delay to IMF disbursements and, possibly, a weaker Leu.