10% inflation

Besides vampires and a prolific gymnast at the Montreal '76 Olympics (first perfect 10) what does one know about Romania? Not a tiny country by any standards, with a decent-enough population, facing a raging deficit (9,3% in 2024) that will leave us stranded in the excessive deficit procedure for years to come and with an inflation rate going up and up and up.

8,5% in august 2025 against the EU average of 2,4%. We can no longer be grouped with the states in the region with which we often share the position of the:

highest risk of poverty or social exclusion.

lowest expenditure on healthcare per capita.

This time, it is different, Romania is in a league of its own, moving fast towards that 10% yearly inflation target which is a threshold no one wants to cross. We barely avoided the victory of a far-right candidate coming out of nowhere (not by democracy, but by simply annulling the election ). Again, months later, we barely avoided another victory of another far-right candidate who once was a fighter for public places in big cities, coming from the civil society. No annulment this time, just votes .

Fast-forward a couple of months and the far-righters are trailblazing past all the mainstream political parties which are now in power.

But back to inflation

The raging inflation is not solely about the cost of living crisis (bad, don't get me wrong, my favorite brand of milk is up 40% since October 2023), but about the potential arrival of the almighty far-righters... and about the cost of borrowing.

For the past 14 months the Central Bank of Romania has left the interest rate unchanged (6,50%). Sure, since the peak in late 2022, inflation has been going down and in July and August 2024, the Central Bank decided to cut by 25bp. 50bp cuts together, okay, we are down from 7,00% to 6,50%. Decent, not bad.

But wait for it, because Romania not only is a champion when it comes down to deficits, but also to government revenues. Put us alongside Malta and Ireland (fiscal paradises), because we barely collect anything . Is it an issue of low taxation? Perhaps, but also a failure to actually collect 1/3 of the VAT .

But okay, what actually led to this inflation?

Energy prices. Fruits and veggies as well, but primarily energy prices. Following the outbreak of the war in Ukraine, Romania took a proactive stance and decided to put a cap on the amount that individual households would pay on their electricity bill.

Freeze the price/kWh and the government will cover the difference. Also, tax a little bit the big energy producers here and there, so basically keep the prices lower. Great. That cap expired in July 2025 , no one wanted to renew it because it is too expensive, so they left the prices to freely float once again.

And they did... by a lot. 66% in august 2025.

Okay, so energy is the main culprit. Yes. But...

The hidden story that many forget about is that fruit prices have been going up like crazy. Mind you, there is also a cap on added value on certain essential food items. Still, even with that cap, fruits prices are only going up and up.

Is it part scheming? Probably, cannot rule that out. Though, The Central Bank of Romania, rang the alarm bell saying: floods and uncertain weather conditions. In two words: climate change.

Okay, but borrowing costs?

Basically, inflation won't be coming down until July 2026. The electrical energy price cap was lifted in July 2025, so it takes time for that inflation to cool down. If everything goes to plan, sure, there may be some cuts past July 2026.

Though, do not forget climate change and that also basic foods have a price cap set to expire in March 2026. Imagine them lifting that.. What could happen?

There may be some cuts, okay, past July 2026. Borrowing costs will most likely go down (albeit there is no other governmental crisis), though until then who has the highest borrowing costs in the EU? We do .

Stay tuned, there is more coming.

A little about myself: I left Romania in my youth and traveled the world, lived in Italy (UWC Adriatic), graduated from Bowdoin College and later hopped places on a Watson Fellowship. I am now back in Romania, consulting on legal and economic affairs various trade unions, progressive organizations and working closely with the government.

My work is primarily in Romanian, you can find it here or here .