Romanian Deflation Unexpectedly Deepens on Food, Energy

  • Prices fell 3.3% compared with 2.9% drop predicted in survey
  • Central bank has cut 2016 CPI forecast to 0.6%, 2017 to 2.7%

Romania’s first bout of deflation since the fall of communism unexpectedly deepened last month as lower food and energy tariffs added to the downward pull of tax cuts.

Consumer prices fell 3.3 percent from a year earlier after dropping 3 percent in March, the National Statistics Institute said Thursday in an e-mailed statement. The median of 13 estimates in a Bloomberg survey of economists was for a 2.9 percent decline. Prices fell 0.2 percent from the previous month.

The central bank says tumbling prices are the temporary result of pre-election tax cuts and predicts inflation will return in July. Nevertheless, lower energy tariffs are compounding the downward pressure, prompting the bank this month to trim its 2016 inflation forecast. It left its benchmark interest rate at a record-low 1.75 percent last week.

“Annual inflation is likely to remain negative until November 2016 and the future increase in 2017 is less steep than previously thought,” Eugen Sinca, a Bucharest-based economist at Erste Group Bank AG, said in an e-mailed note. 

The leu weakened 0.1 percent to 4.4985 against the euro by 4:04 p.m. in Bucharest. It’s this year’s fifth-best performer among 24 emerging-market currencies tracked by Bloomberg.

Food prices fell 7.4 percent from a year earlier in April, while non-food items dropped 1 percent and services costs declined 0.4 percent, the institute said.

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