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Deflation in Romania for the First Time Since 1989

Due to the large decrease in VAT on food and beverages in June, the Romanian inflation rate has turned negative for the first time in more than 25 years. 

Consumer prices fell by 3% in June compared to May, with the annual rate for June also negative -1.6%.

According to the National Institute of Statistics, food prices fell by 8.2% following the controversial decrease in VAT by the government in June.

Non food products registered a slight increase in prices of 0.1%, month on month.

Romania reduced VAT on food and beverages from 24% to 9% earlier in the year. Another general VAT cut will come into effect in January of next year. The general rate of VAT will be cut to by 4% to 20%.

The move has been branded as irresponsible by many. However, Prime Minister, Victor Ponta recently said that the lower rate of VAT has increased government revenues for July and August, based on the same period last year.

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