Romanian Deflation Deepens for Fifth Month on Food, Energy Cost

  • Prices fell 3.5% matching estimates of 12 economists in survey
  • Central bank sees 2016 inflation at 0.6%, 2017 at 2.7%

Romania’s first bout of deflation since the fall of communism deepened for a fifth consecutive month as food and energy prices dropped after two rounds of tax cuts.

Consumer prices fell 3.5 percent in May from a year earlier after declining 3.3 percent in April, the National Statistics Institute said Friday in an e-mailed statement. That matches the median of 12 estimates in a Bloomberg survey. Prices rose 0.3 percent from the previous month as the effect of a sales tax cut for food in June 2015 starts to fade.

The central bank says tumbling prices are the temporary result of pre-election tax cuts and predicts inflation will return in July. Lower energy tariffs are compounding the downward pressure, prompting the bank last month to trim its 2016 inflation forecast. It left its benchmark interest rate at a record-low 1.75 percent on May 5.

“Low import prices may prevent headline inflation from exceeding targets significantly in 2017,” said Dan Bucsa, a London-based economist at UniCredit Bank AG said in a note. “As a result, the central bank may remain more dovish than the business cycle would require.”

The leu was little changed at 4.5090 against the euro at 9.00 a.m. in Bucharest. It’s this year’s seventh-best performer among 24 emerging-market currencies tracked by Bloomberg.

Food prices fell 7.6 percent from a year earlier in May, while non-food items dropped 1.2 percent and services costs declined 0.6 percent, the institute said.

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