Inflation Affected by Tobacco Tax Increase

Cigarettes taxes were increased in Romania too. Romania’s central bank increased its inflation forecast for 2010 after a tobacco tax increase. And even the higher than usual inflation experienced in January was due to the widespread increase in taxes at the end of the year.

tobacco taxes and cigarette sales in Romania

Governor Mugur Isarescu told: “January inflation will prove to be higher than expected and that will influence the user price index for the whole year. 2011 inflation will no longer be affected by the tobacco tax increases.”

Policy makers this week cut the benchmark concern rate to 7 percent from 7.5 percent after the nation’s credit rating expectation was raised and optimism increased that its revenue will be recapitulated.
Researchers showed that the International Monetary Fund, which leads the 20 billion-euro ($28 billion) lent for Romania, forecast 1.3 percent economic growth this year will add inflation pressure.

The inflation rate was 4.7 percent at the end of last year, when the economy limited about 7 percent. Early tobacco price increases pressured the rate above the 4.5 percent target agreed with the International Monetary Fund. The central bank targets inflation of between 2.5 percent and 4.5 percent this year and between 2 percent and 4 percent in 2011.

The price of cigarettes, which accounts for 4.6 percent rose 38.6 percent on the year in December and was supposed to rise quickly in January.

Soon officials will lessen on the leu power this year as government measures ameliorate investor feeling, Isarescu said. So, the currency was little changed at 4.1375 to the euro. It recovered this week to its strongest in more than a year, and has gained 2.9 percent this year.

The bank also predicts that tax extents on fuel, alcohol and tobacco products will add 1.5 points to inflation in 2010, with a total inflation rate of between 5.5 and 8.3 percent in 2010.

The Romanian bank concluded that the increase of inflation was mostly due to tax increases on fuel, alcohol and cigarettes and would contribute to higher inflation in March as well.

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