Romania’s annual inflation rate moves slightly up in February despite tax cuts

Romania’s annual inflation rate reached 0.2% in February, up from 0.1% in January, despite several tax cuts that entered into force on February 1, 2017. Food prices went up by 1.43% in February this year compared to the same month of 2016, and non-food products got more expensive by 0.11%, on average, despite lower fuel prices. Service prices went down by 1.71% year-on-year, after the radio-TV tax was removed on February 1, 2017. The scrapping of the subscription tax for national radio-TV services shaved-off, as expected, 0.4 percentage points from the annual headline inflation, according to ING Bank. ING analysts warn that Romania may see a spike in the annual inflation rate at the beginning of next year, which may prompt Romania’s National Bank (BNR) to take the first steps towards “normalizing” the monetary policy. “We expect annual inflation to spike up in Jan-18 by 0.9 ppt from 1.7% to 2.6% and inch further higher to 3.1% in Feb-18 as tax cuts drop out of the statistical base (the 1ppt VAT cut and scrapping the special excise fuel duty in Jan-17 and the radio-TV tax in Feb-17). If the situation looks the same in terms of the inflation outlook by the July 3 BNR meeting, it should back our call for the first step towards policy normalization on that day,” reads an ING note. editor@romania-insider.com