Negative inflation rate in Romania after VAT cut on food

Consumer prices in Romania decreased by nearly 3% in June compared to May, due to the VAT rate cut from 24% to 9% on food products and non-alcoholic beverages applied starting June 1, according to recent data from the National Statistics Institute INS. The annual inflation rate (June 2015 compared to June 2014) went down to minus 1.6% in June, turning negative for the first time in the last 25 years, reports local Mediafax. The VAT rate cut contributed by 3.5 percentage points to the general decline in consumer prices, as it led to price declines for over a quarter (27%) of the products that make the basket for calculating the consumer price index. Food prices went down 8.2% in June compared to May, prices of non-food products went up 0.1%, and services were 0.2% more expensive. Romanians paid almost 10% less for vegetables in June, compared to May, and over 10% less for meat and milk and dairy products. Eggs were also 13% cheaper in June while the price of sugar decreased by more than 10%. Compared to June 2014, food prices decreased by 6.44%. On the other hand, non-food products got 0.76% more expensive while services’ prices went up by 2.5%. Food prices also decreased when compared to December 2014, by 6%. The average increase in consumer prices in the last 12 months (July 2014 to June 2015) compared to the previous 12 months was 0.7% Romanian Government cuts VAT on food to 9%. Romanian PM: VAT cut to bring EUR 1 bln to GDP. Study: Lower VAT rate on food increases sales volumes in Romania Irina Popescu, irina.popescu@romania-insider.com