Romania Ctrl Bank Sees Inflation Up By 4 Pps After Sales Tax Hike

„Inflation is expected to rise by three to four percentage points, even more. The good news (…) is that large retailers seem to include the higher value added tax in their costs rather than to transfer them to the buyers,” Popa told an economic seminar.

Popa said the central bank has only a limited initial scope for action when it comes to inflationary shocks, such as tax increases, adding that the low consumption is the only core element that contributes to disinflation currently.

The central bank official declined to comment on a possible revision of the year-end inflation target, but said the indicators included in the country’s EUR13 billion loan agreement with the International Monetary Fund focus on the prognosis period rather than the actual target.

Last Friday, the IMF approved increasing Romania’s inflation target to 7.9% in 2010 from 3.5% initially, following the enforcement of a five percentage point increase in the VAT level to 24%.

Romania’s central bank targets an annual inflation of 3.5% this year, plus/minus one percentage point.