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Central bank revises upwards to 7.5% the inflation forecast for the end of the year
The National Bank of Romania (BNR) revised upwards to 7.5% the inflation forecast for the end of this year and to 4.4% for the end of 2024, according to data presented on Wednesday by BNR governor Mugur Isarescu.
BNR estimated in May 2023 an inflation of 7.1% for the end of 2023. In February 2023, the central bank revised down its inflation forecast for the end of this year to 7% and forecast inflation of 4.2% for the end of 2024.
"The bold letters are really a warning. The basic scenario was built on the basis of the legislation in force and the data we have at the time of the projection. That is, the report was discussed first in the Monetary Policy Committee and then in the Council. So about 3-4 weeks ago. On those we entered the model because the forecast is based on a European, sophisticated, modern model, a macroeconomic model. The data was entered into the model. But we cannot enter 10 variants there. It is the basic scenario. At most we could make two or three alternative scenarios. The basic scenario is made with the definite data we have and we introduce it into the model and that's how it came out. In our press release we specified this, maybe with slightly too technical terminology. I saw that it was read totally erroneously that we warned the Government or that we alerted the Government. There is no warning from the Government and I make this clarification not to make news out of the news. And there I talked about uncertainties regarding the forecast . So to the address of this basic scenario. No uncertainties that we are warning the Government that if they increase taxes, inflation will increase," stated Mugur Isarescu, who presented the Quarterly Report on Inflation.
He specified that only some increased taxes lead to an increase in inflation, namely direct consumption taxes, excise taxes and VAT.
"Increasing income taxes, for example, can even have the opposite effect. It is more difficult to calculate the increase in income taxation. It leads to a decrease in aggregate demand," explained the governor of the BNR.
According to the presentation, the basic scenario was built on the basis of the legislation in force at the time of the projection and does not include the impact of the fiscal consolidation measures recently discussed by the authorities. The trajectory is above the one presented in the Inflation Report from May, but more significant only at the end of the current year (+0.4 pp).
It is also mentioned that there are wide uncertainties regarding the projected trajectory in the context of the likely adoption of fiscal correction measures on the side of budget revenues, with a direct impact on CPI inflation (for example, increases in indirect taxes - VAT, excises).