Romanian Deflation Deepened Last Month on Sales-Tax Cuts

  • Prices fell 3%, compared with survey predicting 2.8% decline
  • Central bank sees prices starting to grow again in July

Romania’s first bout of deflation in more than 25 years deepened after two rounds of sales-tax cuts in the run-up to elections this year.

Consumer prices fell 3 percent from a year earlier in March after dropping 2.7 percent in February, the National Statistics Institute said Monday in an e-mailed statement. The median of nine economist estimates in a Bloomberg survey was for a 2.8 percent decline. Prices rose 0.1 percent from the previous month.

The central bank sees the deflation as the temporary result of tax cuts and forecasts prices will start growing again this summer. While it held borrowing costs at a record-low 1.75 percent for a seventh meeting last month, it plans to tighten policy, with the economy expanding at one of the continent’s fastest clips and inflation set to rebound toward the upper end of its tolerance range next year.

The leu has benefited as regional central banks trimmed borrowing costs, gaining 1.3 percent against the euro this year, the fourth-best performance among 24 emerging market currencies tracked by Bloomberg. It was little changed at 9 a.m. in Bucharest.

Food prices fell 6.7 percent from a year earlier in March, while non-food items dropped 0.9 percent and services costs declined 0.5 percent, the institute said.

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