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Romania Inflation Quickens to Fastest in a Year, on Food

Oct. 10 (Bloomberg) -- Romanian inflation accelerated at the fastest pace since June 2011 in September as rising food and energy costs threaten to push price growth above the central bank’s target for this year.

The inflation rate rose more than forecast to 5.3 percent after a 3.9 percent August rate and the central bank’s forecast of 3.5 percent for the third quarter, the Bucharest-based National Statistics Institute said today. The figure exceeded the 4.7 percent median estimate of 13 economists in a Bloomberg survey. Prices rose 1.2 percent from August.

The Banca Nationala a Romaniei, which has a 2012 inflation target of 2 percent to 4 percent, kept its benchmark rate unchanged at its meeting at a record low on Sept. 27 to weigh the impact of accelerating food-price growth because of a drought as economic growth slows.

“If households’ inflation expectations deteriorate strongly and second-round inflation effects arise in the economy, we would not rule out a gradual increase in the key rate in 2013,” Banca Comerciala Romana SA economist Eugen Sinca said after the report.

Sinca forecast inflation will quicken to 5.5 percent in December this year and 4.7 percent at the end of 2013, according to an e-mailed note. Inflation will probably end the year at about 6 percent, Vlad Muscalu, a Bucharest-based economist at ING Bank Romania SA, wrote in a note today.

‘Volatile Prices’

The report suggests “the increases in volatile prices is filtering to processed prices, supporting our idea that the inflation acceleration is not temporary,” Muscalu said. It “argues strongly in favor of rate hikes, and the most likely moment for hiking rates remains the first quarter of 2013, given the Dec. 9 general elections.”

Inflation may quicken this year more than the central bank’s 3.2 percent forecast due to political turmoil that plunged the leu to a record low and a drought that boosted prices for imports and food, Governor Mugur Isarescu said on Aug. 6. This year’s rate is likely to stay within the bank’s target, he said at the time.

Food costs rose 6.9 percent in September from a year earlier, compared with a 3.3 percent growth in August, driven by rising vegetable and fruit prices, according to the institute. Inflation for non-food items quickened to 4.3 percent, compared with 3.9 percent in August, after the country raised natural-gas prices to meet pledges to its international lenders.

Service-price growth slowed to 4.8 percent in September from a year earlier, compared with 4.9 percent in August, the institute said.

Industrial output contracted a seasonally adjusted 1.1 percent in August from a year earlier, after a 1.9 percent gain in July, the institute said in a separate release today. Output shrank 1.1 percent on the month.

-- With assistance from Barbara Sladkowska in Warsaw. Editors: James M. Gomez, Jeffrey Donovan

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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