Isarescu unafraid of price hikes

The National Bank of Romania is more optimistic than most analysts regarding the inflation trend in the second half of the year, estimating that inflation will reach 3.9% (up from the previous forecast of 3.7%), but NBR Governor Mugur Isarescu (photo) admits to significant risks related to the forecast. Still, the prognosis remains lower than the official inflation target set by the NBR at 4% for 2007. Isarescu said that the risks related to the new forecast are much more significant than he had anticipated in May, when he presented the previous quarterly report on inflation. Mugur Isarescu issued a “yellow code” warning on the risks entailed by the Government’s income policy. This time, the central bank is not just mentioning excessive wage increases, but also the “cascading” effects triggered by them: the pension increases generated by the wider contribution basis, but also accelerated lending, as the customer indebtedness level increases. Still, the overall tone of the speech was optimistic. “We estimate that the future inflation trend will post slight variations around the target. We are talking about 0.2-0.4 percentage points,” Isarescu said, noting these variations are “insignificant” compared to past dramatic experiences.