Analysts See Big Surge In Romania’s July Inflation After VAT Hike

Analysts estimate the annual rate will reach between 6.3% and 8% in July, from 4.4% a month earlier. The monthly inflation is expected to come in at 1.8% to 3.4%, from a rate of 0.16% in June.

Lucian Anghel, chief economist at Banca Comerciala Romana, or BCR, believes the VAT increase will lead to an annual inflation of around 8% in July. He added the rate could reach 8.5% by year-end, saying the weak domestic demand might not be enough to offset inflationary pressures.

Romania’s government raised the VAT to 24% from 19% as of July 1, in a move to boost revenue and reduce the budget deficit.

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According to central bank’s governor Mugur Isarescu, the measure will trigger a two-step increase in consumer prices by year-end, of 3% and 1% respectively.

The central bank estimates the annual inflation will reach 7.8% in December.