Romania’s consumer price inflation dropped to minus 2.98% y/y as of March from minus 0.93% y/y at the end of last year and marked a new record low level, in line with the central bank’s expectations, the statistics office said on April 11.

HICP inflation was minus 2.5% y/y, from minus 2.1% y/y one month earlier and minus 0.7% y/y at the end of 2015. However, inflation excluding the first round effects of VAT rate cuts was slightly above 1% y/y at the end of March.

Average consumer prices in the 12 months to the end of March dropped by 1.4% y/y, compared to a 1.1% y/y decline calculated in February.

In March, prices have edged up by 0.1% m/m. Food prices and the fees paid for services decreased marginally, on average by 0.1% m/m each. Non-food prices increased by 0.23% m/m, driven by the 1.27% m/m rise of car fuels prices – a correction after sharp declines during the previous quarters.

Headline inflation will accelerate to 1.4% at the end of the year as the base effects caused by the VAT rate cut last June (15pp for food and beverages) dissipate, the central bank projected in its latest Quarterly Inflation Report. After the base effects caused by the 4pp cut in the VAT rate this January dissipates next January, headline inflation is projected by the central bank to accelerate to 3.4% y/y at the end of 2017. The forecast includes the 1pp cut in the main VAT rate cut to 19% scheduled for next January.

Excluding all the first round effects of the VAT rate cuts, headline inflation at the end of the forecasting period (end 2017) is expected by the central bank to marginally exceed the 3.5% upper limit of the inflation targeting band.

On an annual basis, food prices were 6.7% down y/y and the non-food prices by only 0.91% y/y down. The fees for services dropped by 0.47% y/y.