Romania’s Inflation Turns Negative In June After VAT Cut For Food Products

07.10.2015 By Bogdan Neagu

Romanian consumer prices fell by almost 3% in June from a month earlier and the annual inflation turned negative, mainly due to lower food prices after a cut in the value added tax rate, official data showed Friday.

The inflation rate was at minus 1.6% in June, compared to a six-month high of 1.2% in May, according to data released by the country’s statistics institute INS.

Romania cut the VAT rate for food products to 9% from 24% starting June 1. According to the statistics office, the proportion of products whose VAT was reduced account for some 28% of the inflation basket.

As a result, the food prices went down 8.2% in June against the previous month. Prices of non-food items and of services were up 0.1% and 0.2%, respectively, compared with May.

Romanians paid 10% less for vegetables in June compared with a month earlier, while meat prices were down 10.3%. Fish was 9% cheaper compared with May, egg prices went down 13%, while the prices of milk and dairy products declined 10.4%. In the non-food sector, fuel and clothing prices inched up 0.1%, tobacco products were by 0.2% more expensive, while utility prices were up 0.9%.

Compared with June 2014, food product prices were down 6.4%, while the prices of non-food items and services rose 0.8% and 2.5%, respectively.

Romania’s central bank sees the inflation rate staying around zero by the end of 2015, due to the cut of the VAT rate. Low inflation environment will persist next year as well, as the recently-adopted Tax Code includes a reduction of the standard VAT rate from 24% to 19% starting January 1, 2016.