Deflation might be back after two years

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Prices should go down slightly in August from July, according to financial analysts, who say that would be the second monthly deflation in recent history in Romania after August 2006.
Prices might go down by 0.2% on a monthly basis, bringing inflation down to some 7.9% year on year.
 
In July 2008, inflation advanced to 9.04% year on year, according to data released on September by the National Statistics Institute (INS). Also on a monthly basis, June-July 2008, consumer prices increased by 0.69%. And yet, the July price rises were below the 9.2-9.4-percent levels expected by economists. Moreover, prices for food and services went down in July by an average of 0.68% and 0.3%, respectively.
The same scenario of falling food and fuel prices might repeat itself in August as well.
 
“Annual inflation should be dropping rapidly in the next months. We are expecting a 0.2-percent deflation this August and a level close to 0% in September. At the same time, annual inflation should decrease from 9.04% in July to 7.9% in August and 7% in September.
Consumer prices then might increase to 6% year on year in December,” Raiffeisen Bank Romania Chief Economist Ionut Dumitru told daily Business Standard.
 
Monthly falls of 0.2% in prices are also estimated by ING Bank Romania Senior Economist Nicolaie-Alexandru Chidesciuc. Chidesciuc says prices should decrease for food, fuels and services, such as telephony. “I think consumer prices will record a 0.2-percent decline in August from July, which would mean an inflation rate of 7.9% year on year. There are three main product categories where I am expecting price cuts: seasonal products – food products, fruits and vegetables – fuels and services, which would result from the appreciation of the local currency,” says Chidesciuc.
 
What weighed in heavily this August in inflation developments was the lack of rises in administrated prices, as it happened in July. The main products and services making up the consumer baskets which prices are administered are electricity, heat, natural gas, drugs, post and landline communications services, water, sewerage, sanitation, city transportation and railway transportation.
 
Chief economist of Banca Comerciala Romana (BCR) Lucian Anghel says inflation would have been possible in July as well, had it not been for rises in administered prices. Even in this context, price falls did occur, for food and fuels. “I am expecting a monthly inflation rate of -0.1% to 0.1%; in annual terms, prices advanced 8.2% At the same time, we could witness deflation in September as well,” says Anghel.
 
Deputy Chair of the Association of Romanian Financial Analysts Dragos Cabat is less optimistic.
He predicts price rises of between 0.3 and 0.4% this August on a monthly basis, and of 8.4% in annual terms.
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