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BNR: Inflation rate is expected to reach 4.2 percent at the end of 2019
The annual CPI inflation rate is expected to reach 4.2 percent at the end of this year, 3.4 percent in December 2020 and 3.3 percent at the projection horizon, specifically in Q2 2021, according to the National Bank of Romania's Inflation Report.
According to the document, volatile food prices (vegetables, fruit and eggs) are projected to grow 11.4 percent by the end of the current year and 2.9 percent by the end of 2020, with growth rates relatively similar to those in the previous report. Their trajectory is shaped by the substantive increases registered in Europe at the beginning of the current year, in the context of adverse weather conditions, and by the assumption of a normal agricultural harvest in 2020, that will mitigate the inflationary pressure associated with this component on this horizon.
According to the outlook for fuel prices, they are expected to grow by 4.7 percent by the end of the current year, a figure revised downward by 1.7 pct, and 2.1 percent by the end of 202 (revised upwards by 0.4 pct).
The scenario for the evolution of prices for tobacco products and alcoholic drinks expects them to grow by 6.7 pct by the end of the current year and by 4.2 pct by the end of next year, respectively.
The report notes that despite the decrease in the risks highlighted in the previous quarterly report, the approaches in the tax and revenue policies remain relevant as a source of risks, but especially of uncertainties over the projection interval. The configuration of these policies could bear the brunt of the busy electoral calendar in the 2019 - 2020 period, with successive rounds of presidential, local and parliamentary elections, given that both the characteristics of the current year budget execution and the set of measures aimed at increasing the pension point (in 2019 and 2020) would most likely require substantial offsetting measures to keep within the reference budget ceilings.
According to BNR Governor Mugur Isarescu ,the annual inflation rate slightly declined toward the end of this year's second quarter, remaining over the upper bound of the variation band of the target.
"The annual inflation rate slightly declined toward the end of the second quarter of 2019, just as I said in the release issued three days ago, however, it remained over the upper bound of the variation band of the target. Contributing to the decline of inflation was the favourable base effect at the level of tobacco products and those with administrated prices, the correction of oil quotation, in the context of the concerns about the global economy slowing down, and one factor that is not mentioned here: the prices for vegetables and fruits also dropped. Legislative changes pushed inflation up during the second quarter. There were also supply-side shocks on the pork meat segment," Isarescu stated.
In respect to the factors which determined inflation to increase, he also mentioned the robust annual dynamics of the net average wage in the economy and the rise in excess aggregate demand.
The BNR Governor stated that the annual dynamics of fuel prices entered a downward trajectory, mainly due to the decline of Brent quotation.
"The economic activity intensified somewhat surprisingly in the first quarter of 2019 and we have a positive development in the sense of improving confidence in the economic activity. It's true that, from our point of view, of the macroeconomic balances, the final consumption is the main component which pulls up the economic activity," Mugur Isarescu stated.