Central bank governor Isarescu: Inflation pressure persists

The National Bank of Romania (BNR) is not jubilant and does not pride itself for having won the war, it's just a battle victory, as inflation is starting to go down, but inflationary pressures persist, governor of the National Bank of Romania (BNR) Mugur Isarescu said on Wednesday at the presentation of the Report on Inflation. 

"We have significantly higher production costs. To prevent them from translating into inflation, in price rises, they must be counterbalanced by productivity. There are no signs of a productivity fall in Romania until now, but pay heed that productivity gains must be at least equal, if not higher than cost increases or exogenous costs, for things to stay balanced. Otherwise, we have energy cost growth, there is also a significant rise in the unitary labor costs. In time, the economy and the society can assimilate them, but the National Bank is bound to send an alarm signal. This is about fundamental, not short-term balances we have to be very careful to keep," said Isarescu. 

He added that the excess of demand has significantly dropped below the level forecast by BNR last year. 

"Economic growth is no longer at 7 percent, it is somewhere at 4 percent. We'll see in the coming months. [If] we want higher economic growth, we must stimulate the potential of the economy, not just demand," Isarescu said, cautioning that stimulating only demand, beyond potential, can have just two effects: creating jobs abroad following the increase in imports to cover the excess of demand, and another effect - the generation inflation. 

Romania's top banker said that a slowdown is noticeable for wage rises, except for the public sector, "which has again taken to an upward line"; yet Isarescu said he does not want to comment on this aspect. 

The National Bank of Romania revised downwards its year-end inflation forecast from 3.6 pct to 3.5 pct, BNR governor Mugur Isarescu said on Wednesday. 

For the end of 2019, the central bank estimates an inflation rate of 2.7 percent, down 0.3 pct from the initial projection of 3 percentage points.