Romanian Consumer Prices Fall More Than Forecast on Tax Cut

  • Deflation extends into third month, worsening to 1.9%
  • Bank of America sees prices in decline for rest of year

Romanian deflation worsened in August, stretching into a third month after a reduction in the value-added tax for food.

Consumer prices fell 1.9 percent from a year earlier after July’s 1.7 percent decline, the National Statistics Institute said Thursday in an e-mailed statement. That’s more than the 1.5 percent decrease seen in a Bloomberg survey of 10 economists. Prices fell 0.5 percent from the previous month.

More accustomed to jumps in consumer prices, the European Union’s second-poorest nation is experiencing what the central bank calls “temporary deflation” caused by tax cuts. Policy makers have trimmed their 2015 inflation forecast to minus 0.3 percent and lowered interest rates to a record amid further plans to ease taxes set for January.

“CPI will remain in deflation through 2015, but a narrowing deflation rate is likely on low base effects,” Mai Doan, an analyst at Bank of America in London, said in a research note before the data were released.

The leu weakened less than 0.1 percent to 4.4219 against the euro as of 9:15 a.m. in Bucharest, bringing this year’s advance to 1.3 percent, data compiled by Bloomberg show.

Food prices declined 7.2 percent from a year earlier in August, while non-food items rose 0.8 percent and services costs gained 2 percent, the institute said.