In 2025, inflation will return to its 2.5% ±1 percentage point flat target interval, albeit at its upper limit, with a rate of 3.5%, the central bank said in its May inflation report issued on Wednesday.
Earlier this week, the BNR kept its key rate unchanged at 7% for the 11th consecutive meeting, defying analyst expectations of a quarter-point cut, which would have been the first in over three years.
According to the central bank’s updated baseline scenario, after reaching 6.6% at end-2023 and March, Romania’s annual inflation rate is seen to stay on a downward path throughout the projection interval. However, the pace of disinflation is projected to decelerate notably over the next two years, compared to 2023, due to higher wage cost dynamics.
The last quarter of 2023 saw a fast increase in compensation per employee, which was accompanied by a near-stagnation of the labour productivity growth rate. The central bank stressed that the persistence of the considerable gap between these two indicators leads to further inflationary pressures from labour costs. Domestic industrial activity continues to face multiple difficulties as a result of modest external demand, while wage dynamics remain significant, the BNR added.
Since February, several risk factors have emerged, including public sector wage hikes, especially for healthcare and social security employees. Geopolitical tensions in the Middle East have intensified, raising the risk of further disruptions in international trade. Tensions between Iran and Israel, along with recent US and UK bans on Russian aluminum, nickel, and copper imports due to the Ukraine conflict, could impact global metal markets and drive inflation, according to the BNR.
Romania’s consumer prices rose by 5.9% on the year in April, slowing down from the 6.6% annual increase recorded in March, the national statistical office said earlier this week.
