Romanian Inflation Soars to 9.9%, Hitting Two-Year High Amid Tax Hikes

URGENT UPDATE: Romanian inflation has surged to a staggering 9.9% in August 2023, marking the highest rate in two years. This spike follows significant tax increases aimed at boosting budget revenue and comes amid rising energy and fuel costs, according to the Romanian statistics office in Bucharest. The previous month’s inflation rate was just 7.8%, highlighting the rapid acceleration in consumer prices.

This alarming development is further compounded by the government’s recent decision to raise the value-added tax, a move designed to address what has become the European Union’s widest budget deficit. As a consequence, the central bank is unable to lower borrowing costs, which are already among the highest in the EU.

Central Bank Governor Mugur Isarescu indicated that interest rates may remain unchanged at 6.5% for an extended period, even if a rate increase isn’t immediately necessary to combat the inflation surge. The central bank has revised its price growth forecast upwards, predicting inflation could peak above 9% before gradually easing to 3% by the end of 2026.

Prime Minister Ilie Bolojan faces mounting pressure as the government grapples with a projected budget shortfall exceeding 8% of the nation’s economic output this year. The cabinet recently survived a series of confidence votes from the far-right opposition, which reflects the growing social unrest against potential austerity measures.

Economist Andreea Elena Draghia from Raiffeisen cautioned, “The uncertainty surrounding future inflation developments remains high.” She added that the central bank is likely to maintain its current monetary policy rate through May 2026, despite the weak economic performance anticipated in the coming months.

This spike in inflation will have immediate implications for Romanian households, with rising prices impacting everything from groceries to utilities. The public’s reaction to these economic pressures is expected to escalate, making the government’s next steps critical in addressing both the budget deficit and public discontent.

As the situation develops, observers will be closely monitoring how the Romanian government balances the need for fiscal stability with the growing calls for social support amidst rising inflation. Stay tuned for further updates as this story unfolds.