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BNR: Fluctuation streak of annual inflation rate seen extending into Q3 2025

June 17, 2025

The fluctuation streak of the annual inflation rate will extend into the third quarter of 2025, due to base effects and to the electricity price cap scheme being removed, but a decrease in inflation can be expected after that for roughly four quarters, the National Bank of Romania (BNR) said in a release.At its meeting on Friday, the BNR Board of Directors examined and approved the May 2025 Report on Inflation, a document that incorporates the data and information available until April 30, 2025.According to the Report forecast, over the four-quarter period of decline, inflation will keep on a significantly higher trajectory than that previously anticipated, falling only in Q1 2026 and only marginally below the upper limit of the target range, and remaining relatively constant thereafter. The downward trend will be driven mainly by disinflationary base effects and influences from the deceleration of growth in import prices, as well as by the downward adjustment of short-term inflation expectations, combined with the time-lagged effect of the aggregate demand deficit, which is expected to widen and grow moderately in the current year, and slowly contract thereafter.According to the BNR, "Increased uncertainties arise from the future conduct of the tax and revenue policies, including in the current domestic political context, given on the one hand the budget execution in Q1, and on the other hand the requirement for budgetary consolidation in accordance with the Medium-Term Budgetary-Structural Plan agreed with the EC, as well as with the excessive deficit procedure. The existence of a credible budgetary consolidation package is crucial, including in the light of the need for an orderly correction of the external imbalance, as well as through the implications on the accessibility and cost of financing to the public and private sectors."The absorption and use of European funds, mainly those under the Next Generation EU program, are essential for at least partially offsetting the contractionary effects of budgetary consolidation and geopolitical/trade conflicts, as well as for carrying out the necessary structural reforms, the energy transition included.Uncertainties and major risks to the outlook for economic activity, and implicitly the medium-term evolution of inflation, come from the international context, shaped by the prolongation of the war in Ukraine and the situation in the Middle East, but especially from the potential effects of the US trade policy and the measures adopted in response by other states, which are likely to affect the course of the global economy and international trade, the BNR points out.Also, the monetary policy decisions of the ECB and the Fed, as well as the attitude of the central banks in the region, are of relevance.The next meeting of the BNR Board of Directors dedicated to the monetary policy will take place on July 8.

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