BNR's Isarescu: Inflation peaks at 9.6-9.7pct in September; 8.8pct, likely over 9pct by year-end

Inflation will form a "curl" in September, reaching a peak of 9.6-9.7pct and will likely be above 9pct by the end of the year, according to data presented on Tuesday by Governor of the National Bank of Romania (BNR) Mugur Isarescu within a press conference.

"This is a calculation I made earlier. It needs to be improved based on what we saw today from the consumer price index. The impact of large supply shocks on inflation this year and on the adjusted CORE 2 inflation has been calculated. Overall, it amounts to 4 percentage points. This is the main reason why we could not even consider an interest rate cut. That is why I used the word large, a large increase in inflation this year. Two percentage points come from the liberalization of the energy market on July 1. Looking at the index released today, it's slightly higher, 2.2 percentage points. The second major VAT shock, according to our calculations, impacts headline inflation, CPI by 1.6 percentage points, with an excise duties increase adding 0.4 percentage points. Four percentage points were calculated last week, 4.2-4.3 percentage points based on today's data. The impact on adjusted CORE 2 inflation is also significant. There are three major shocks that will be absorbed in the coming period if we avoid secondary effects, deterioration of inflation expectations is not easy after such price increases. This is the forecast. We have a pretty noticeable 'curl' so to speak, and it's actually a bit larger. So, in September, when the peak likely occurs, instead of 9pct, inflation will probably be around 9.6-9.7pct, after which there will be a gradual absorption of these shocks. Indeed, in our forecast, by the end of next year, inflation will not only fall within the targeted range, but will be even lower than the inflation projected in the previous round, in the last inflation report," Mugur Isarescu explained at the press conference presenting the quarterly Inflation Report.

The BNR revised upward its inflation forecast for the end of 2025 to 8.8pct, "probably over 9pct," from the previous 4.6pct and anticipates it will reach 3pct by the end of 2026, compared to 3.4pct in the previous forecast.

According to the data presented at the conference, the liberalization of the energy market on July 1, 2025, will have a 2 percentage point impact on the annual CPI inflation rate. The increase in VAT rates will have a 1.6 percentage point impact, while the rise in excise duties will contribute 0.4 percentage points.