The annual rate of inflation dropped to 8.6% in September from 13.2% in June. The National Bank of Moldova anticipates it will fall below the upper limit of the target variation range in the fourth quarter of 2023 and will remain close to the target, albeit below it, in the next eight quarters.
Average annual inflation in the third quarter of 2023 was 9.7%, 0.5 percentage points above the forecast. According to the NBM, the deviation was mainly caused by the delay in the reduction of tariffs for natural gas and thermal energy, as well as the unexpected increase in oil prices.
Tariff hikes with their spin-off effects, the war in Ukraine, last summer’s drought, a cooler spring and an increase in excise taxes since the start of the year are keeping inflation above target. But weak demand from mid-2022 and the appreciation of the leu since the beginning of the year weaken the pressures.
The NBM says there are clear signals that in October inflation was placed within the range of the target variation.
Consumer prices will slow, at least due to weak domestic demand, tempering industry prices, recent tariff cuts and the high base effect of last year. At the same time, aggregate demand will be disinflationary throughout the forecast period due to restrictive monetary conditions, negative fiscal stimulus and weak external demand.
The trends anticipated in previous rounds remain broadly valid. The inflation forecast was raised slightly for the first two quarters and lowered for the rest of the comparable period.
“Forecast risks and uncertainties have increased. From the external environment, sources such as tensions in the Middle East, energy quotations, the decrease in economic activity in the euro zone, the war in Ukraine, the timing of the relaxation of monetary policies in the region and worldwide, temporary supply shocks and food prices are emerging. Among the main internal uncertainties are the adjustment of tariffs, the way of reflecting in statistics the compensations for energy resources for the cold period of the year, the flow of refugees, weather conditions and the future agricultural harvest”, the NBM said.
