The annual rate of inflation dropped from 30.2% in December 2022 to 22% in March 2023. Actual inflation in the first quarter of this current year was 0.9 point higher than predicted, the National Bank said.

The annual inflation rate in April 2023 was 18.1% lower than what the NBM expected. By components, food prices increased by 16.4% annually, prices of non-food goods by 10.6%, and of services provided to the population by 33.2%.

According to the NBM, the increase in tariffs with their side effects, the war in Ukraine, last summer’s drought and the increase in excise taxes at the beginning of the year keep inflation well above the target. However, disinflationary demand starting in mid-2022 and the appreciation of the leu since the beginning of this year continue to mitigate the pressures of the aforementioned factors.

“The current forecast is based on a better external economic context, but below the potential level and with many risks and uncertainties. Monetary tightening in advanced economies and still-low demand in China are clouding the outlook for the global economy. International prices are falling, due to risk dissipation and lower consumption compared to high supply in several segments. The forecast for the Eurozone economy has improved”, says the NBM.

The NBM expects that consumer prices will slow down in the coming period, at least against the background of low domestic demand, the decrease in the electricity tariff, the effect of the high base from last year, as well as against the background of the slowdown in food price increases due to a positive agricultural year outlook. At the same time, the NBM anticipates at the end of the third quarter of 2023 a decrease in tariffs of natural gas and related utilities which, together with their secondary effect, will have a disinflationary impact.

The annual rate of inflation will decline until the end of the forecast horizon and return to the variation range in the fourth quarter of 2023. This dynamic will be largely determined by all components of inflation. Aggregate demand will be negative until early next year due to deteriorating household financing, weak external demand and less restrictive monetary conditions, but will be boosted by a small positive fiscal stimulus.

According to the National Bank, the risks and uncertainties of the forecast are high, but the balance of risks remains disinflationary.