The updated forecast shows that the annual inflation rate is expected to continue to decline on a lower trend than the previous projection, especially in the near term, according to a press release by the National Bank of Romania.

In Wednesday’s meeting, the BNR Board of Directors analysed and approved the Inflation Report, August 2024 edition, a document that incorporates the latest available data and information.

According to the cited source, the annual inflation rate is expected to fall at the end of the current year and in the first quarter of 2025 to values significantly lower than previously forecast, and after a temporary increase in the second quarter of 2025 to return and to be maintained until the end of the projection horizon slightly below the upper limit of the target range, implicitly at levels somewhat lower than those in the previous forecast.

The decline in the annual inflation rate will be further driven by supply-side factors, whose disinflationary action will remain more intense in the short term than previously expected, under the impact of base effects and legislative changes in the energy sector. To this will be added the influences expected to come over the entire forecast horizon from the decline in short-term inflationary expectations and the deceleration in import price rise, as well as from the very slight narrowing of the aggregate demand surplus, relatively in line with previous forecasts.

BNR mentions that uncertainties and high risks arise from the conduct of fiscal and revenue policy, taking into account, on the one hand, the budget execution in the first six months of the year, the dynamics of public sector wages and the full impact of the new pension law, and, on the other hand, the fiscal-budgetary measures that could be implemented in perspective in order to continue budgetary consolidation, in the context of the medium-term fiscal-structural plan presumed to be submitted to the EC in the autumn of this year. Labour market conditions and wage dynamics also remain a source of uncertainty and significant risks. At the same time, significant uncertainties are associated with the evolution of energy and food prices, against the backdrop of legislative changes and this year’s prolonged drought, as well as the future trend of the oil price in the context of geopolitical tensions.

The war in Ukraine and the conflict in the Middle East, as well as economic developments in Europe, continue to generate uncertainties and risks to the outlook for economic activity, implicitly for the medium-term evolution of inflation, according to BNR. At the same time, the absorption of European funds, mainly those related to the Next Generation EU programme, is conditional on the fulfillment of certain strict criteria and benchmarks. However, it is essential for achieving the necessary structural reforms, including the energy transition, but also for counterbalancing, at least partially, the contractionary effects of geopolitical conflicts.

According to BNR, also relevant are the monetary policy decisions of the ECB and the Fed, as well as the stance of central banks in the region.

According to the press release, the decisions of the BNR Board of Directors are aimed at ensuring and maintaining price stability in the medium term, in a manner that contributes to achieving sustainable economic growth. The Board of Directors reiterates that, in the current context, a balanced macroeconomic policy mix and the implementation of structural reforms, including through the use of European funds to stimulate long-term growth potential are essential for macroeconomic stability and strengthening the capacity of the Romanian economy to cope with adverse developments.

The new Quarterly Inflation Report will be presented to the public at a press conference on August 9. The minutes of the deliberations regarding the adoption of the monetary policy decision at Wednesday’s meeting will be published on the BNR website on August 20, 2024 and the next meeting of the BNR Board of Directors dedicated to monetary policy will take place on October 4, 2024.

AGERPRES