Romania’s negative demand gap narrows – c-bank inflation report

By bne IntelliNews May 9, 2014

Demand in Romania remains subdued but the demand gap is narrowing, according to the latest Quarterly Inflation Forecast issued by the central bank on May 8.

The economic activity is gaining ground and the negative output gap is narrowing. But in price stability terms, this means smaller impact on disinflation, the central bank report also notes. The negative output gap has been a major disinflation driver recently.

However, the central bank has cut again its end-2014 inflation forecast to 3.3% after previously raising it by 0.2pps amid the supplementary taxes and excise hikes enforced by the government earlier this year. The end-year inflation forecast for 2015 was also marginally adjusted - but upwards, by 0.1pps to the same level of 3.3%.

The negative output gap has been revised for the entire forecast interval to levels entailing relatively softer-than-previously-projected disinflationary pressures, due to the statistics office’s revision of GDP, the faster-than-anticipated economic growth in the final quarter of 2013 and the reassessment of the real broad monetary conditions, which are seen to be more growth-supportive during the reference period.

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