BNR: Inflation Report - August 2026

  Developments in inflation and its determinants   According to Central Bank (BNR) data, the annual CPI inflation rate reached 10.42 percent in June 2026, i.e. 0.55 percentage points above the March level. The pick-up reflected mainly the effects of the conflict in the Middle East, which passed through via higher and volatile energy prices, as well as a number of domestic factors, including the adjustment of some administered prices and the depreciation of the leu against the major currencies. An opposite influence had the drop in consumer demand and the overall favourable developments in agri-food commodity prices.   Behind the rise in the 12-month inflation rate in Q2 stood mainly the energy component. The annual inflation rate for fuel prices picked up from 12.9 percent in March to 19.2 percent in May before moderating to 16 percent in June. The dynamics of electricity and natural gas prices gained momentum, primarily due to base effects. Upward pressures on electricity prices resurged amid elevated temperatures in June, whereas in the case of natural gas, some effects came from the commodity price hikes associated with the crisis in the Middle East. The support scheme helped contain the direct impact on households, without, however, suppressing the indirect pressures via firms’ costs. The average annual inflation rate continued to rise in 2026 Q2. In June it amounted to 9.8 percent based on the national methodology and to 8.6 percent according to the harmonised index, i.e. up 1.3 percentage points and 1.0 percentage points versus end-Q1.   In turn, the annual adjusted CORE2 inflation rate stopped its downward trend in 2026 Q2, rising to 8.3 percent in June, i.e. 0.1 percentage points above the March level. Developments by subgroup, however, were mixed. Their annual dynamics of processed food prices remained on a downward path, slowing to 7.4 percent in June from 7.9 percent in March. Behind this stood the favourable conditions in agri-food markets and the significant adjustment in unit labour costs in food industry.   Conversely, the growth rate of non-food prices went up mildly to 7.1 percent in June from 6.9 percent in March, mainly owing to the build-up of pressures along value chains following the hike in the prices of some commodities and imported inputs, in the context of the Middle East conflict, but also of the microchip crisis. Market services prices posted the most pronounced acceleration, their annual dynamics reaching 11.5?percent in June from 10.5 percent in March. This reflected chiefly the depreciation of the leu, given the high share of prices expressed in euro, the pick-up in energy costs, as well as some specific pressures in certain consumer demand segments. Overall, services continued to be the most persistent component of core inflation.   The annual rate of change of unit labour costs economy-wide rose to 1.9 percent in 2026 Q1 (against 0.3 percent in the previous quarter), amid a drop in annual dynamics of labour productivity (to 0.1 percent from 2.8 percent in the previous quarter) and the further positive growth rate of the compensation per employee (2 percent), albeit slower than in the previous quarter. In industry, the annual rate of change of unit wage costs moderated to 4.1 percent (compared to 7.8 percent in 2025 Q4) on account of both the softer wage dynamics and layoffs. However, the data for the April-May period point to a faster annual growth rate (6.4 percent) amid the significant contraction in industrial output (to levels comparable to those seen during the pandemic), much stronger than the adjustment in labour costs.   Monetary policy since the release of the previous Inflation Report   In its meeting of 15 May 2026, the BNR Board decided to keep the monetary policy rate at 6.50 percent per annum. The interest rates on standing facilities were also left unchanged, i.e. the deposit facility rate at 5.50 percent per annum and the lending (Lombard) facility rate at 7.50 percent per annum. In March 2026 the annual inflation rate had stopped its slow downward trend, rising to 9.87 percent from 9.31 percent in February, following the significant hike in fuel prices in the context of the Middle East conflict, which had been counterbalanced to a small extent by the minor decreases in the dynamics of energy and administered prices, as well as in core inflation.   In 2026 Q1 as a whole, the 12-month inflation rate had thus risen mildly, given that the influences coming over that period from the pick-up in fuel prices and the moderate renewed acceleration in the dynamics of VFE prices and tobacco product prices had somewhat outweighed those stemming from the notable drop in natural gas and electricity prices, as well as from the slight deceleration in core inflation. The annual adjusted CORE2 inflation rate had entered a mildly downward path at the beginning of 2026, falling to 8.2 percent in March from 8.5 percent in December 2025, under the impact of disinflationary base effects and the decrease in the prices of some agri-food commodities and in the dynamics of import prices, but also amid weaker consumer demand.   Heightened uncertainties were associated, in the domestic political environment, with potential future measures to continue budget consolidation beyond the current year in line with the National Medium-Term Fiscal-Structural Plan agreed with the European Commission and with the excessive deficit procedure. High uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, arose also from the Middle East conflict and the global energy crisis, via the effects they might exert, through several channels, on consumer purchasing power, as well as on firms’ activity and profits, inter aliaby affecting the dynamics of economies and inflation in Europe/worldwide and the risk perception towards the region, with an impact on financing costs. At that juncture, the absorption and use to the maximum of EU funds, especially those under the NRRP, were essential for partly counterbalancing the contractionary effects of budget consolidation and of the Middle East conflict, as well as for carrying out the necessary structural reforms, energy transition included. The ECB’s and the Fed’s monetary policy decisions, as well as the stance of central banks in the region, were also relevant.   Subsequently, the 12-month inflation rate had continued to pick up during the first two months of 2026 Q2, climbing to 10.85 percent in May. The advance had been driven mainly by the significant increases, over that period, in the dynamics of natural gas, fuel and administered prices, under the impact of base effects and the rise in oil prices, as well as following a notable hike in rents for state-owned housing. At the same time, the annual adjusted CORE2 inflation rate had seen a halt in the slow downward trend it had embarked on at the onset of 2026, rising mildly in both months to reach 8.5 percent in May 2026 from 8.2 percent in March, as a result of the influences from the indirect effects of costlier fuels and from the increases in the EUR/RON exchange and in the dynamics of some import prices, also amid high short-term inflation expectations.   In turn, economic activity had stalled in 2026 Q1, after contracting by 1.9 percent in 2025 Q4 (quarterly change), which made it likely for the aggregate demand deficit to widen moderately over that period, in line with expectations. In 2026 Q1, economic activity had decreased by 1.2 percent versus the same year-ago period, after a 0.2 percent advance in 2025 Q4, given that household consumption had posted a stronger decline, in annual terms, while gross fixed capital formation growth had slowed down, albeit remaining robust. At the same time, net exports had had a lower expansionary effect in 2026 Q1, due to the narrowing of the positive differential between the annual dynamics of exports of goods and services and those of imports, in terms of volume, as both had decreased against the previous quarter. Consequently, over that period, the trade deficit had reported a lower contraction in annual terms, whereas the current account deficit had seen a faster year-on-year decline amid the improvement in the evolution of income balances. At the time of the BNR Board meeting of 8 July 2026, the assessments indicated the prospects for the annual inflation rate to shrink slightly in June, before posting a substantial decline in 2026 Q3, as previously anticipated, amid the fade-out of the direct effects from the removal of the electricity price cap and the increases in VAT rates and excise duties. At the same time, increasingly obvious underlying disinflationary pressures were expected over the longer horizon, primarily from aggregate demand, amid the budget correction initiated in 2025 and continued in 2026 – with favourable implications for inflation expectations as well –, conducive to the adjustment of the current account deficit. Based on the data and assessments available at that time, as well as in light of the very high uncertainty, the BNR Board decided in the meeting of 8 July 2026 to keep the monetary policy rate at 6.50 percent per annum. Moreover, it decided to leave unchanged the deposit facility rate at 5.50 percent per annum and the lending (Lombard) facility rate at 7.50 percent per annum. Furthermore, the BNR Board decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.   Inflation outlook   The outlook for the global economy remains marked by high uncertainty, fuelled mainly by the economic consequences of the Middle East conflict and energy market volatility. A favourable influence is coming from the robust dynamics of investment in technology, underpinned inter alia by the development in and expansion of the use of artificial intelligence, which partly mitigates the adverse effects of the energy shock. According to the most recent IMF assessments, the global economy is expected to grow by 3 percent in 2026 and by 3.4 percent next year. This hints at a temporary slowdown this year, followed by a recovery, yet developments are still uneven: energy-importing economies are more exposed to detrimental effects, while the economies better integrated into technology chains benefit more from the investment momentum relating to artificial intelligence.   At the same time, disinflation at global level was temporarily discontinued amid rising energy and food prices. The baseline scenarios of major international institutions envisage a gradual transit normalisation through the Strait of Hormuz and an ensuing decline in energy prices, in line with the profile of futures curves.   However, this assumption remains vulnerable, as a renewed conflict escalation, lingering logistical disruptions or the slow recovery of production, transport and refining capacities could prolong the impact of the energy shock.   Against this background, the NBR’s updated baseline scenario outlines for 2026 a less favourable macroeconomic performance than previously anticipated, characterised by a higher inflation rate and somewhat weaker GDP dynamics.   The annual CPI inflation rate is foreseen to stand at 6.1 percent at end-2026 and 3.4 percent at end-2027, 0.6 percentage points and 0.5 percentage points above the previously forecasted levels. At the end of 2026 Q2, inflation rate came in at 10.42 percent, close to the 10.3 percent level envisaged in the May 2026 Inflation Report. A substantial correction is further expected for 2026 Q3, to approximately 5.9 percent, due largely to the fading statistical effects from last year’s increases in VAT rates, excise duties and energy prices.   Throughout the projection interval, the revised path of inflation is foreseen, however, to run above that in the previous round. The differential rises temporarily in early 2027, to about 1 percentage point, before narrowing gradually. The upward revision reflects mostly a higher path of the adjusted CORE2 inflation, owing also to the leu’s depreciation in May, which fed through to the prices of imported goods and to some services prices that are expressed in foreign currency. In the same direction have acted the hikes in some administered prices, especially rents for state-owned housing, as well as the upward reassessment of natural gas prices amid higher storage and transport prices in April 2026 and ahead of price increases in the next cold season.   Conversely, the more favourable developments in prices of vegetables, fruit and eggs, together with the updated path of oil prices being lower than that envisaged in the previous round, partly mitigate the upward revisions of these components.   The annual adjusted CORE2 inflation rate is forecasted to fall to 5.4 percent at end-2026, 3.1 percent in December 2027 and 2.3 percent at mid-2028. The decrease will be more pronounced in 2026 Q3, when the indirect tax hikes introduced a year ago drop out of the indicator’s calculation. In the first part of the projection interval, the path is influenced by the leu’s depreciation versus the euro, the increase in telecommunications prices and mandatory motor third-party liability insurance tariffs, the removal of the cap on the mark-up on basic food products, and the indirect effects of the energy shock.   Throughout 2026, disinflation is supported by the fiscal consolidation initiated as early as 2025 and the slowing wage cost dynamics, and from Q3 onwards also by the stronger alleviation in inflation expectations. Conversely, pressures persist in certain segments of services and, over the medium term, the disinflationary influence of aggregate demand abates, as the negative output gap closes at a brisker pace. Compared to the previous Inflation Report, the updated values have been adjusted upwards by 0.6 percentage points for end-2026 and end-2027, and by 0.3 percentage points for March 2028.   The aggregate demand deficit stays high and continues to put disinflationary pressure on the adjusted CORE2 inflation throughout the projection interval. However, the pass-through of this influence is gradual and does not fully offset, over the short term, the pressures stemming from the leu’s depreciation, the increase in costs, the persistence of services inflation, and the still high inflation expectations.   Beyond the persistence of the demand deficit, the average annual dynamics of economic activity in 2026 are saddled with a strongly unfavourable carry-over effect induced by the contraction in activity in late 2025. Adding to this are the effects of the ongoing fiscal consolidation and those related to the Middle East conflict. Against this background, economic growth this year is foreseen to be significantly lower than in 2025, although economic activity is expected to gradually recover in the course of the year.   Domestic demand is anticipated to witness mixed developments. Consumption is severely hurt in 2026 by the contraction in real disposable income and the tight fiscal policy, being the main drag on economic activity. Conversely, investment continues to fare well and support economic activity, thanks to the projects already under way and the absorption of EU funds. However, its prospects are confined by the NRRP renegotiation and the cut in loan component, which have diminished the resources available to fund additional projects. In parallel, during this year, the weakness of consumption helps moderate imports and, implicitly, improve the contribution of net exports.   In 2027, economic activity is expected to gather some momentum amid the moderation of inflation and the gradual restoration of real incomes. The lagged, albeit persistent, pass-through of the leu’s depreciation in May 2026 is expected to make an additional favourable contribution by improving external competitiveness and upholding net exports. Nevertheless, the recovery path will further hinge on investment performance, which is in turn contingent on the absorption of EU funds and the rebound in foreign demand.   Under these conditions, the current account deficit is projected to see a gradual correction over the medium term, from 7.9 percent of GDP in 2025. The magnitude of the adjustment will depend primarily on further fiscal consolidation, especially on the pace of cutting the fiscal deficit. Data for January through May 2026 already point to an improvement in the current account deficit compared with the same year-ago period, mainly on the back of a better trade balance performance amid flat imports and relatively favourable export dynamics. However, the adjustment tempo could be slowed by costlier energy and chemicals, fertilisers included. For some categories of products with a large share in imports, price increases have already depressed demand and import volumes, but the price effect induced by the energy crisis prevailed, keeping the value of imports elevated and causing the terms of trade to worsen. As from 2027, the commissioning of the Neptun Deep block appears set to marginally help the external balance improve by boosting natural gas exports and containing the need for imports to cover domestic consumption.   The BNR’s monetary policy stance aims to bring the annual inflation rate back in line with the 2.5 percent ±1 percentage point flat target on a lasting basis, inter alia via the anchoring of inflation expectations over the medium term, in a manner conducive to achieving sustainable economic growth.   Even though some of the risks highlighted in the previous Report have materialised since then, the balance of risks to inflation is assessed as remaining prevailingly tilted to the upside. The main risks and uncertainties arise from geopolitical and energy-related developments, the ongoing fiscal consolidation and the ending of the NRRP, changes in the sovereign risk premium and, implicitly, in financing conditions, as well as the intensity of the pass-through of higher costs to consumer prices, core inflation included.   External risks have amplified amid the fragility of ceasefire agreements in the Middle East and, recently, the spreading of tensions to the Red Sea. A potential simultaneous disruption of traffic through the Strait of Hormuz and the Strait of Bab el-Mandeb would significantly confine alternative transport routes and could trigger broader and more persistent effects on inflation than those embedded in the baseline scenario. Even assuming a resumption of maritime traffic, the prices of oil and refined products could stick to high levels if energy infrastructure, refining and transport capacities or insurance services were to be affected further.   Energy-related vulnerabilities do not concern crude oil availability alone. Refining capacity constraints, low inventories and possible disruptions in supply from Kazakhstan or the Gulf could keep motor fuel prices under pressure. Risks are higher for diesel, which holds a large share in domestic consumption, is more dependent on imports and, in particular, is more exposed to Gulf supplies. Potential supply squeezes, logistical hardships or increases in refining margins would feed through both directly, to pump prices, and indirectly, through steeper costs in transport, agriculture and industry.   Significant uncertainties linger also in the natural gas market, where prices have recently resumed the upward path. Diversification of supply sources, expansion of imported liquefied natural gas capacities across Europe and stock levels help alleviate vulnerabilities, yet without rooting them out. As for Romania, the magnitude of risks will largely depend on the market conditions prevailing when the household consumer protection scheme expires in April 2027.   On a positive note, the commissioning of the Neptun Deep block could boost domestic supply and gradually decrease domestic price sensitivity to international market developments. Until these effects materialise, the further elevated external prices could entail higher price adjustments than those envisaged in the baseline scenario.   On the domestic front, risks are primarily associated with the implementation of medium-term fiscal consolidation and the fulfilment of the NRRP targets by the end of August 2026. The delay or failure to fulfil certain milestones could depress external transfers and require financing from local sources for the projects already in advanced implementation stages, affecting the general government deficit.   Furthermore, the persistence of political tensions could delay the adoption and implementation of adjustment measures, weaken the coherence of economic policy decisions and impede the efficient use of EU funds.   A slower-than-planned fiscal consolidation could temporarily underpin domestic demand, but would extend inflationary pressures and widen fiscal and external imbalances, thereby increasing public debt and financing requirements. Conversely, swifter adjustment would mitigate these vulnerabilities and uphold disinflation, at the expense of more sluggish economic activity over the near term.   Financial conditions have improved compared with the tension-ridden episodes seen in spring, but yields on government securities and the risk premium remain above the levels recorded at the beginning of the year. A worsening of the fiscal outlook or a further heightening of geopolitical tensions could increase funding costs, put pressure on the exchange rate and delay investment decisions.   Moreover, risks persist in relation to administered price adjustments and possible indirect tax changes. Looking further ahead, the introduction of the ETS2 in 2028 could put additional pressure on motor fuel prices and households’ heating costs. The size of the effect will depend on the price of allowances, the extent to which costs will be passed on to consumers and the possible adoption of compensation measures, as also highlighted in recent analyses by other central banks in the region.   Persistent wage pressures and still elevated inflation expectations in the short term could foster a broader pass-through of cost shocks, particularly in the services sector. Nevertheless, these influences are partly cushioned by the demand deficit, the moderation in consumption and a gradual easing of labour market tensions, which limit both firms’ capacity to fully pass on cost increases to final prices and the pressures for sizeable pay rises.   In addition, weather conditions and the volume of agricultural crops could make food prices veer off significantly from the trajectory in the baseline scenario. Overall, inflation developments will chiefly be contingent on the persistence of external shocks, the coherence of the policy mix, the credibility of fiscal consolidation and the continued anchoring of medium-term inflation expectations.   Monetary policy decision   Given the recent evolution and the outlook of inflation, as well as the risks and uncertainties associated with the new forecasts, the NBR Board decided in its meeting of 10 August 2026 to keep the monetary policy rate at 6.50 percent. Moreover, it decided to leave unchanged the lending (Lombard) facility rate at 7.50 percent and the deposit facility rate at 5.50 percent. Furthermore, the NBR Board decided to maintain the current levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.