Romania’s inflation dives to negative 0.7% y/y in November

Romania’s inflation dives to negative 0.7% y/y in November
By Iulian Ernst in Bucharest December 13, 2016

Romania’s consumer price inflation dropped to negative 0.7% y/y in November from negative 0.4% y/y in October, remaining in the region of the moderate deflation largely explained by supply-side drivers. Consumer prices edged up marginally in November from the month before, after they increased more visibly by 0.4% m/m in October.

Romania’s central bank increased the projection for next year’s yearend inflation by a marginal 0.1pp to 2.1% y/y in its latest Inflation Report released on November 10. The forecast for this year’s eop (end of period) inflation was maintained at minus 0.4% y/y.

Net of the first-round effects of recent VAT rate cuts, the inflation would be higher and it would marginally exceed the 2.5% +/-1pp inflation targeting band at the end of the forecasting period in September 2018.

In a comment to Bursa daily, Lucian Isar, a former bank analyst and member of the shadow cabinet of the National Liberal Party (PNL), said the central bank will probably have a more accommodative policy on interest rate hikes versus the cabinet expected to be formed by the Social Democratic Party (PSD) after the December 11 election. Isar's opinion was given in a political context and followed tough criticisms of the monetary authority, but his opinion makes sense in the light of the traditional relationship between members of the central bank’s board and the PSD. However, ultimately this will depend on the budget drafted by PSD after it forms the cabinet and the risk of fiscal slippage the central bank might identify.


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