Romania’s Inflation Hits Two-Year High After Tax Increase

Inflation in Romania accelerated to its highest level in two years due to tax increases, which caused energy and fuel price hikes. This was reported by Bloomberg, according to epravda.com.ua. Consumer prices rose 9.9% in August compared to the previous year, against 7.8% in August, the statistics office in Bucharest reported on Thursday. This figure is the highest since June 2023. Prices rose by 2.1% compared to the previous month. In August, the Romanian government raised value added tax in an attempt to curb the largest budget deficit in the European Union. This is preventing the central bank from lowering borrowing costs, which are currently among the highest in the EU. Interest rates are likely to remain unchanged for an extended period, although raising rates may not be necessary to combat rising inflation. The Romanian central bank has raised its inflation forecast for this year, stating that it could peak at over 9% before falling to 3% by the end of 2026. The government of Prime Minister Ilie Bolojan may have to take additional measures in the coming months to overcome the budget deficit, which is likely to exceed 8% of GDP this year. “Uncertainty regarding future inflation remains high. We expect the central bank to keep its monetary policy rate at 6.5% in the coming quarters, possibly until May 2026, even if economic indicators are weak,” said Andreea-Elena Draghia, Bucharest-based economist at Raiffeisen.