Central bank projects higher path of annual inflation rate over next two years

The National Bank of Romania's (BNR) latest inflation scenario projects a higher than initially forecast trajectory of the annual inflation rate over the next two years, following a new considerable upward revision in the short-term and a lesser uptick for the second segment of the projection horizon, the central bank said in a statement on Friday.

"In today's meeting, the BNR Board examined and approved the August 2021 Inflation Report, which incorporates the latest available data and information. The current scenario shows a higher path of the projected annual inflation rate over the next two years, with the indicator being again revised considerably upwards in the short term and to a lower extent in the latter part of the projection horizon. Specifically, the substantial hikes in energy prices - natural gas, electricity and fuels - in July, with a cumulative contribution of about 1 percentage point to the annual CPI dynamics, pushes the annual inflation rate in H2 2021 above the previously anticipated levels, above the variation band around the target, which is likely to boost and extend the transitory inflationary impact of supply-side factors," the statement reads.

At the same time, following the downward corrections in early 2022 driven by base effects, the annual inflation rate is expected to fall and to remain marginally below the upper bound of the band, above the values projected in May 2021, amid the increase to relatively higher levels in the aggregate demand surplus that re-opened earlier than expected in Q1 2021, agerpres.ro confirms.

The BNR mentions that the evolution of the pandemic and the related containment measures pose heftier uncertainties and risks to the current forecasts, at least in the short run, given the resumed growth in domestic infections and the marked slowdown in the pace of vaccination, as well as signs of a new pandemic wave in Europe and elsewhere, amid the spread of a more contagious coronavirus variant (Delta).

As regards the labor market, BNR notes that developments continued to improve, also compared to expectations, but uncertainties persist about the near-term outlook for the epidemiological situation and the implications of government support schemes being ceased. However, risks stem also from the synchronised uptrends in many commodity prices, which are likely to accelerate global inflation.