Romania’s central bank raises inflation forecasts due to Ukraine war

Romania’s central bank on Tuesday it is increasing its inflation forecast for 2022 to 13.9%  up from 12.5% predicted in May due to constraints amplified by the war in Ukraine.

Inflation is predicted to reach 7.5% at the end of 2023, above the 6.7% that was forecast in May, the central bank, BNR, said in its August inflation report.

Romania’s consumer prices rose by 15.05% year-on-year in June, higher than the 14.49% increase in May, the national statistics office said last month.

„Since the publication of the May 2022 Inflation Report, which had already pointed to an unusually high level of uncertainty, associated with economic, social and geopolitical developments, part of the risks identified at that moment have materialised,” the bank said.

It said “global market sentiment worsened further, also amid the unexpected, ongoing and across-the-board inflation spike, which spurred …. the continuation of the monetary policy normalisation cycle in both emerging and advanced economies.”

Under the current scenario, the strongest economic effects of the war in Ukraine are anticipated to occur this year, with  prospects of gradually fading in 2023 and 2024, the bank added.

The global supply and demand imbalance for many commodities, mainly natural gas and  electricity increased in recent months, triggering a knock-on effect on the economy.

„In conjunction with the disruptions in agri-food commodity markets… as well as with the visibly lower demand of external partners in Europe, a relative stagnation of Romania’s economy is foreseeable over the coming quarters,” the BNR said.

To alleviate the adverse effects of rising commodity prices, authorities could carry on existing support schemes or, where appropriate, introduce new ones.

The central bank noted that Romania benefits from EU funds that could be a medium-term buffer for adverse shocks.

Romanian economy heading towards stagflation




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