Rise in Inflation Adds to Romania’s Woes

The annual inflation rate rose to 3 per cent last month, up from 2.04 per cent in June, the second increase this year, according to the official data.

The National Statistics Institute, INS, said on Friday that prices rose by 0.59 per cent year-on-year, due to increasing prices of food and non-food products, while services added 0.84 per cent.  Food prices rose 1.2 percent in comparison to July 2011.

Analysts view the country's growth prospects cautiously.

“After months of lower inflation, now the trend is reversing. The current drought and the continuous depreciation of the national currency against the euro boosted prices more than the government estimated,” says economist Ilie Serbanescu.

Romania’s annual inflation stood at 3.14 per cent at the end of 2011, which was the lowest in the last 20 years.

In related development, the government cut its forecast for this year’s economic growth to 1.2 per cent from a previous estimate of 1.5 per cent because of lower agriculture output, Prime Minister Victor Ponta said on Thursday.

Recent polls reflect public concern over the state of the country’s finances. They show that Romanians are concerned about inflation and unconvinced about the prospects of a lasting economic recovery.

Romania is dependent on a 20 billion euro rescue package from the IMF, the European Union and the World Bank. It obtained the loan in May 2009 in exchange for agreeing to push through austerity measures aimed at taming the country’s deficit.

In July 2010 the government cut civil servants' wages by 25 per cent, while thousands of state jobs were axed and VAT was increased by five percentage points to 24 per cent.