Inflation is projected to continue abating to reach 3.5% at the end of 2025, which aligns with the upper end of the central bank’s target band of 1.5%-3.5%, the central bank said in its February inflation report.
According to the central bank’s updated baseline scenario, after reaching 6.6% at end-2023, Romania’s annual inflation rate is seen to stay on a downward path throughout the projection interval, but the pace of disinflation is projected to decelerate notably starting with the second quarter of 2025.
The beginning of this year has delivered several increases in VAT rates and excise duties, which are estimated to cumulatively contribute 0.7 percentage points (pp) to the annual headline inflation rate, the central bank, BNR, said. Another round of hikes in excise duties on fuels is planned for July, bringing the total contribution of changes in indirect taxes to the annual inflation rate to 0.9 pp at the end of 2024, before shrinking to 0.2 pp at the end of the year.
Wage cost pressures remain crucial for sustaining the disinflationary trend in the upcoming period, particularly for non-food items and services, where the average gross wage in the service sector continues to show double-digit annual growth rates, the BNR noted.
Several risk factors have appeared since the central bank’s previous inflation forecast in November, with fiscal pressures such as measures to recalculate pensions as of September 2024 taking precedence. Heightened geopolitical tensions in the Middle East have also emerged, potentially leading to bottlenecks in commodity passageways. The resulting increase in energy costs could also hinder central banks' global disinflationary monetary policies, potentially eroding their credibility if inflation remains above targets for an extended period, according to BNR. Ultimately, such a context could trigger further inflationary pressures worldwide, suggesting possible upward deviations of the inflation rate from its path in the baseline scenario.
Romania’s consumer prices rose by 7.4% on the year in January, slowing down from the 6.6% annual increase recorded in December, the national statistical office said earlier this week.
On February 14, the BNR announced that it decided to keep its monetary policy unchanged at 7%, aiming to bring the annual inflation rate in line with the 2.5% ± 1 percentage point target on a lasting basis.