Romanian Deflation Deepens as Cheap Oil Drags Down Prices

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  • Consumer pices fell 0.8% after 0.7% decline in previous month
  • Central bank lowered its 2016 inflation outlook this week

Romania’s first period of deflation since the fall of communism deepened as low oil and electricity tariffs kept price growth subdued despite the waning effect of a reduction in sales tax.

Consumer prices fell 0.8 percent from a year earlier in July after declining 0.7 percent the previous month, the National Statistics Institute said Wednesday in an e-mailed statement. The median estimate in a Bloomberg survey of 10 economists was for a 0.7 percent drop. Prices decreased 0.2 percent from June.

The deflation figures are unlikely to surprise the central bank, which said this week that price declines in the European Union’s second-poorest member would persist for longer than it had initially forecast. Monetary-policy makers kept borrowing costs unchanged at a record-low for a 10th meeting last week, predicting inflation will only return in 2017.

“Inflationary pressures are likely to remain weak in the short term,” Eugen Sinca, a Bucharest-based economist at Erste Group Bank AG, said in a note. “However, one shouldn’t overlook that weak inflationary pressures at present are mainly related to transitory factors, like the reduction of administered prices for energy before elections and lower oil prices. As some of these effects could vanish in the future, inflation is likely to join an upward trend in late-2017 and 2018.”

The leu strengthened 0.1 percent to 4.4563 against the euro at 12:35 p.m. in Bucharest. It’s this year’s third-best performer among eastern European currencies tracked by Bloomberg with a gain of 1.5 percent.

Food prices rose 1.25 percent from a year earlier in July, while non-food items dropped 2.2 percent and services costs declined 0.9 percent, the institute said.