Romanian Deflation Deepens in January on New Tax Cuts

  • Prices fell 2.1% vs 2.7% drop seen in survey of economists
  • VAT reduction triggered first price declines since communism

Romania’s first bout of deflation in more than 25 years worsened in January after a new round of tax cuts came into force, but the decline in prices was less than expected.

Prices fell 2.1 percent from a year earlier after a 0.9 percent decline in December, the National Statistics Institute said Monday in an e-mailed statement. The median estimate in a Bloomberg survey of 11 economists predicted a 2.7 percent drop. Prices fell 0.8 percent from the previous month.

Monetary-policy makers in the European Union’s second-poorest country see the first deflation since communism abating mid-year as the economy expands at one of the continent’s fastest clips. The central bank, which sees the price declines as the temporary result of sales-tax cuts, held the benchmark rate at a record-low 1.75 percent on Feb. 5, leaving borrowing costs untouched for a sixth meeting.

The leu has gained 1 percent against the euro this year, the second-best performance among 24 emerging-market currencies tracked by Bloomberg. It was 0.2 percent stronger at 4:04 p.m. in Bucharest.

Food prices fell 6.3 percent from a year earlier in January, while non-food items rose 0.1 percent and services costs increased 0.7 percent, the institute said.

(Corrects service-cost figure in last paragraph after statistics institute amends data.)
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