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Economic growth is expected to accelerate progressively in 2024 and 2025, exceeding previous forecasts. This is attributed to the moderation of inflation, the gradual recovery of external demand, and particularly the implementation of fiscal policies and the utilization of European funds from the Next Generation EU instrument, according to the Board of Directors of the National Bank of Romania.
During the meeting, the Board discussed and adopted the monetary policy decisions, based on the data on and analyses of recent macroeconomic developments and the medium-term outlook submitted by the specialised departments, as well as on other available domestic and external information.
Examining recent inflation trends, Board members noted that in March 2024, the annual inflation rate had fallen to 6.61 percent, similar to the level at the end of 2023. This return to the December 2023 rate was attributed to roughly equal but opposite effects in Q1: increases in electricity, fuel, and tobacco prices due to base effects, excise duty hikes, and higher crude oil prices, versus a deceleration in core inflation and a decline in VFE price dynamics.
It was observed that the deceleration of adjusted CORE2 inflation slowed in the first three months of 2024 compared to the previous two quarters. Specifically, its annual rate dropped to 7.1 percent in March from 8.4 percent in December 2023, due to slower disinflation in food prices, as well as non-food items and services, which still had high annual growth rates.
Board members highlighted the various diverging factors influencing core inflation in Q1 2024. Disinflationary base effects, lower agri-food commodity prices, and temporary caps on basic food product mark-ups were prevailing influences, though waning, along with slower import price dynamics. Conversely, fiscal measures from early 2024, higher short-term inflation expectations, and increased wage costs from late 2023, partially passed into some services and goods prices amid rising private consumption, had a moderate opposite impact.
Board members also discussed the dynamics of industrial producer prices for consumer goods, which slowed their decline in Q1 due to changes in non-durable goods prices. Additionally, financial analysts’ long-term inflation expectations remained slightly above the target variation band at the end of Q1 but declined faster in March. Meanwhile, consumer purchasing power remained robust in the first two months of the year due to a continued relatively fast increase in net real wages, as several Board members emphasized.
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