Romanian deflation eases as sales-tax cut impact fades

Bloomberg

Romania’s only bout of deflation since the fall of communism eased for the first time in five months as the base effect of a sales-tax cut last year faded, while low oil and energy prices kept price growth subdued.
Consumer prices fell 0.7% in June from a year earlier after declining 3.5 percent in May, the National Statistics Institute said on Monday. That compares with a 0.6% median decline estimated by eight analysts in a Bloomberg survey. Prices dropped 0.2% from the previous month.
The central bank, which kept borrowing costs unchanged at a record-low 1.75%for a ninth meeting on June 30, says tumbling prices are the temporary result of pre-election tax cuts.
Price declines may continue for longer than previously expected because of cheaper imported goods and lower energy tariffs, Governor Mugur Isarescu said on June. 30.
“A higher share of imported goods in the consumption basket is increasing the effect of low imported inflation,” Dan Bucsa, a London-based economist at UniCredit Bank AG, said in a note. “The inflation rate could decline even more if the agriculture harvest will be a good one this year. We expect a CPI rate close to zero this year.”
The leu strengthened 0.1 percent to 4.5050 against the euro at 9 a.m. in Bucharest. It’s this year’s best performer among currencies in central and eastern Europe. Food prices were little changed from a year earlier in June, while non-food items dropped 1.2 percent and services costs declined 0.7 percent.