Exchange rate, the source of inflation flare-up in early 2009

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The exchange rate was the source of the inflation flare-up in the first part of Q1 2009, but subsequent shrinking demand and the falling import prices prompted a disinflation trend, which will continue in Q2, National Bank governor Mugur Isarescu said on Thursday.

„In the first quarter, inflation was off target and the inflation flare-up at the beginning of Q1 is mainly due to the evolution of the exchange rate. Later, towards the end of the range, we reverted to the disinflation trend,’ said the BNR governor.

Annual inflation in March reached 6.71 percent, up 0.41 percentage points, compared with annual inflation in December, which was 6.30 percent.

„The inflation was influenced the exchange rate, the prices of fuels, medicines and telephony and the effects of the good crop in agricultural year 2008. Disinflation was supported by the restriction of demand, the effects of the economic downturn and falling import prices. Continued wage pressure despite lower productivity would be an aggravating factor,” Mugur Isarescu explained.

The governor said that in Q1 Romania has paid the price of a foreign deficit and an adverse global economic situation.

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