Romania: Consumer prices record largest annual drop on record in June on reduced VAT for food items

In June, consumer prices fell a significant 3.0% over the previous month, which notably contrasted the 0.5% increase observed in May. According to the National Institute of Statistics (INSSE), June’s reading represented the largest decline on record and was mainly driven by the reduction of the value-added-tax (VAT) for food items and beverages from 24% to 9% on 1 June.

In annual terms, consumer prices declined 1.6% in June, which marked the steepest annual drop in prices on record. In the previous month, inflation was at 1.2%. As a result, in June inflation was far below the Central Bank’s tolerance margin of plus/minus 1.0% around its target of 2.5% target. Annual average inflation moderated from May’s 0.9% to 0.7% in June, marking yet another all-time low.

Consensus Forecast panelists see inflation at 0.2% at the end of 2015, which is down 0.1 percentage points from last month’s forecast. For 2016, panelists forecast inflation of 1.4%.