Rising food prices pushed inflation up in February

Non-food products advanced by 0.3% m/m due to higher prices of tobacco products (+1.4%) while services were virtually flat as compared to the previous month following leu appreciation.

On the occasion of a financial seminar held yesterday, the NBR governor remained optimistic on the inflation outlook and said that annual inflation will fall below 4% in December 2011. Our estimation is 4.3%. For the time being we maintain our key rate forecast for end-2011 at 5.75% as the fiscal austerity program will continue within a new agreement with the IMF while domestic demand has shown no signs of revival so far. The risks for our scenario come from higher oil and food prices on the global markets coupled with potential negative results of the domestic agricultural sector in the summer.

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