The annual inflation in June was 3.8%, being by 0.1 percentage points below the level of March. In June, the annual inflation rate returned to the ±1.5 percentage point variation range from the 5% target after temporarily leaving it in May. According to the National Bank of Moldova, the downward trend of the annual inflation rate in the second quarter was determined, on the one hand, by the modest domestic demand and, on the other hand, by the trajectory of international food prices, domestic prices for agricultural and industrial production, as well as the fuel and regulated prices, IPN reports.
Aggregate demand continues to have a modest disinflationary impact on the annual inflation rate, which will be mitigated by particular tariff adjustments, such as the increase in tariffs for medical services, which came into force in July this year. In the second quarter, the annual inflation rate was 3.5% and was by 0.5 percentage points lower than that anticipated in the forecast related to the Inflation Report for May 2024, mainly due to the negative deviation recorded for the fuel prices forecast.
The NBM expects that the annual inflation rate will have a relatively stable trend for the entire forecast period. Thus, the average annual inflation for 2024 and 2025 will be 4.7% and 5.3%, respectively, being revised by -0.3 and 0.7 percentage points.
“The current inflation forecast was revised downwards for the second half of this year and upwards for the second quarter of 2025 - the first quarter of 2026. The downward revision of the forecast annual inflation rate is largely driven by a lower forecast for international food and oil prices. As for the upward revision, it is conditioned by the impact of the drought conditions in the summer of 2024 on food prices in the first half of 2025, the anticipation of a less restrictive aggregate demand over the entire comparable period and a higher natural gas prices forecast,” reads a NBM press release.
According to the institution, the cumulative monetary policy stimulating measures to both consecutively reduce the base rate and lower the reserve requirement norm will increase excess liquidity in the banking system by the end of this year. The current and forecast volume of liquidity will allow banks to lend to economic agents and households, and to invest in State Securities.
However, according to the NBM, particular risks and uncertainties to the medium-term inflation forecast persist, such as disinflationary aggregate demand, the vulnerability of domestic fruit and vegetable prices to weather conditions in the coming period, uncertainties regarding the volume of agricultural production in 2024 and 2025, the evolution of regulated prices, the tense situation at regional and global levels, the volatility of expectations regarding international commodity prices and the EUR/USD parity. Therefore, although there are risks to the evolution of the annual inflation rate, it will remain within the variation range during the forecast interval.
