Annual inflation rate in December 2024 is expected to exceed the previously forecast value and only marginally drop inside the variation band of the target at the end of the projection horizon (March 2026), the National Bank of Romania (BNR) informs in a press release.
„In today’s meeting, the BNR Board examined and approved the May 2024 Inflation Report, which incorporates the latest available data and information. The updated forecast sees the annual inflation rate going down further over the following eight quarters much more slowly compared to 2023 and on a somewhat higher path in the short run than that shown in the previous projection. Thus, the annual inflation rate is expected to stand in December 2024 above the previous forecast and to fall only marginally inside the variation band of the target at the end of the projection horizon (March 2026),” reads the central bank release.
The decrease will continue to be driven by supply-side factors, mainly disinflationary base effects and downward adjustments in commodity prices, whose disinflationary action will however weaken progressively and more markedly over the short term than anticipated earlier. To these add the influences expected to come from the deceleration of import price dynamics and from the gradual softening of short-term inflation expectations, as well as from the very slow contraction of excess aggregate demand over the next two years, in line with previous forecasts.
The BNR representatives stress that heightened uncertainties and risks are associated with the fiscal and income policy stance, considering on one hand the budget execution in the first three months of the year, the public sector wage dynamics and the full impact of the new law on pensions, and on the other hand the additional fiscal and budgetary measures that might be implemented in the future to carry on budget consolidation, inter alia amid the excessive deficit procedure and the conditionalities attached to other agreements signed with the EC. Labour market conditions and wage dynamics in the economy are also a source of sizeable uncertainties and risks.
Nevertheless, uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, also continue to arise from the war in Ukraine and the Middle East conflict, as well as from the economic performance in Europe, particularly in Germany. Furthermore, the absorption of EU funds, especially those under the Next Generation EU programme, is conditional on fulfilling strict milestones and targets. However, this is essential for carrying out the necessary structural reforms, energy transition included, as well as for counterbalancing, at least in part, the contractionary impact exerted by geopolitical conflicts.
The ECB’s and the Fed’s prospective monetary policy stances, as well as the conduct of central banks in the region, are also relevant, BNR points out.
„The BNR closely monitors developments in the domestic and international environment and will continue to use the tools at its disposal to achieve the fundamental objective of price stability in the medium term,” the release reads.
AGERPRES
