The annual inflation rate stood at 4.42% in May, but is likely to boost by 4% in a first phase in July, due to the 5% increase in the value added tax to 24%.

Inflation rate would thus reach 9% in the coming period, after the first round of price hikes generated by the VAT increase will be factored in.

“When we have a tax hike shock with inflationary effect, we have limited room for maneuver, but we don’t want the effects of a VAT hike to extend in the second phase. For the first round, forecasts point to a 3-4% increase in inflation rate”, said Cristian Popa, deputy governor of the National Bank of Romania.

On the other hand, the weak demand for consumption lifts inflation and determines retailers no to raise prices and bear the VAT hike, Cristian Popa added.