BNR increases 2019 inflation forecast from 3 percent to 4.2 percent

The National Bank of Romania (BNR) increased its 2019 inflation forecast to 4.2 percent at the end of this year and projected a 3.3 percent inflation rate for 2020, according to BNR Governor Mugur Isarescu statement in a press conference.

In February 2019, the National Bank of Romania estimated 3 percent inflation for the end of this year and 3.1 percent for 2020.

According to the Central Bank, the annual inflation rate will continue to be higher than the target range over the year 2019, amid speculation of supply-side shocks in the first half of this year.

Subsequently, it will be repositioned and maintained in the upper half of the target range as a result of the depletion of the effects of these adverse shocks, as well as of the persistence of inflationary pressures on base inflation.

Romania’s annual inflation rate increased to 4.1 percent in April, from 4 percent in March, as food and fuel prices went up. The rate registered in April is the highest since October 2018. The level is slightly above expectations as analysts estimated that Romania’s inflation rate declined by 0.1 percentage point in April to 3.9 percent.

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Mugur Isarescu pointed out, in the conference, that the annual inflation rate will continue to be higher than the target range over the year 2019, amid speculation of supply-side shocks in the first half of this year.

Subsequently, it will be repositioned and maintained in the upper half of the target range as a result of the disparison of the adverse shicks effects, as well as of the persistence of inflationary pressures on base inflation.

At 4.2 percent targeted inflation this year, a 0.6 percent contribution is levied on vegetables, fruits and eggs, 0.5 percent on fuels, 0.3 percent on administered prices and another 0.3 percent on products tobacco and alcoholic beverages.

“By the end of the year, inflation, as we see it now, will be around 4 percent, then going down to 3.5 percent, all with a condition: not to change the volatile prices, If the price of crude oil drops, we make a joke, then we are lucky. Also, a good agricultural year, with potatoes, with red, gives the CPI downwards, but what we observe in all this evolution: a fairly high level of uncertainty, from 1.5 to 5 percent where prices can move, and with many factors that influence,” said Isarescu.

He appealed to journalists not to interpret these forecasts negatively.

“I think my presentation today has been constructive, even positive. I say that things are kept under control, within a reasonable margin. 4 percent inflation is not good, it’s bigger than the target, but it’s not catastrophic,” said the head of the central bank.

In his opinion, it is a good thing that in an electoral year inflation is kept around 4 percent and then it will decrease.

“We can not say which prices are rising and which prices are falling, because it depends on where you shop (…) Inflation also has a corrective role. I say as an economist – it is unpleasant for a governor to say something like that, but absolutely perfect for an economist – if it is too much, the economy reacts. It’s hard to say who is to blame, but corrections are made by the market, which is ruthless,” added the governor.