Romania’s central bank concerned with tight labour market and uncertain fiscal consolidation

The annual inflation rate would probably continue to fall over the following months, in line with the latest medium-term forecast published in the May 2023 Inflation Report, despite the demand side pressures generated by the rapid increase of wages, Board members of the National Bank of Romania (BNR) concluded, according to the July 5 monetary policy meeting minute.

The Inflation Report anticipates inflation would drop to a one-digit level in Q3, then to 7.1% in December 2023, and 3.9% at the end of the projection horizon (end of Q1, 2025).

Risks to the exchange rate continued to come from the still significantly wide external imbalance, as well as from the higher uncertainties surrounding budget consolidation at the current economic and social juncture, some Board members cautioned.

Inflation-wise, the base effects and the decline in the prices of commodities were the main drivers of the increasingly stronger disinflationary over the past months. They surpassed the opposite influences from the gradual pass-through of increased costs of firms (including wage costs) into consumer prices, as well as from the preserved profit margins (facilitated by still robust demand), BNR Board members concluded in the July 5 monetary policy meeting.

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