The inflation rate in Romania may remain negative until May as a result of the VAT rate cuts, but the trend will reverse and the price increase will accelerate towards 1% in late 2016, according to an analysis of Austrian Erste Group, which owns the biggest local bank BCR.

The inflation could even reach 2% in the first quarter of 2017, given the perspective that salaries may increase again in the public sector, which hires about 25% of the local workforce, reports local Ziarul Financiar.

Romania’s National Bank (BNR) should start increasing the monetary policy interest rate at the end of 2016 to counteract an undesirable increase in prices, according to Erste.

BNR Governor Mugur Isarescu has admitted that there was an over-stimulation of private consumption.

This year will be an election year and all governments tend to increase social spending and raise salaries that boost private consumption, according to the Erste analysts.

The annual inflation rate reached -0.9% in December last year.

editor@romania-insider.com