Moldova’s Annual Inflation Rate Decelerates to 3.5% in April
The annual inflation rate in Moldova decelerated to 3.5% in April from 3.9% in March, marking the lowest reading since July 2021, according to data from the National Bureau of Statistics (NSB) reported by Trading Economics. The slowdown in inflation was primarily driven by a 2.6% decrease in prices for services, compared to a 0.9% increase in March.
However, costs continued to rise for food (3.8% vs 2.9%) and non-food products (7% vs 6.7%). On a monthly basis, consumer prices grew by 1.8% in April, up from a 0.5% gain in the previous month.
Utilities Prices Influence Inflation Trajectory
The trajectory of overall consumer prices and headline inflation in Moldova is heavily influenced by the regulated sector of utilities, where prices are subsidized during the winter months. In April 2024, utilities prices rose by 8.6% month-on-month, contributing to half of the inflation over the past year.
Despite this increase, utilities prices remained 24% lower compared to April 2023. Both natural gas and electricity prices face upward risks due to their historically low levels.
The end-user price paid by households for natural gas has halved since April 2023, while the end-user price of electricity contracted by 24% year-on-year. Central heating prices also dropped by 40% compared to the previous year.
Price Changes Across Different Sectors
Overall, the price of services, including utilities, dropped by 2.4% year-on-year in April. However, the cost of other services surged, with transport services increasing by 26% and tourism services by 39% compared to the previous year.
Food prices increased by a modest 3.8% year-on-year, thanks to subdued prices for some items like vegetable oil and sugar. Non-food items, including car fuels, rose at a faster rate of 7.0% year-on-year.
According to the National Bureau of Statistics, inflation has amounted to 3.8% since the beginning of the year, while annual inflation from April 2023 to April 2024 stood at 3.51%. Groceries rose by an average of 1.61%, non-food products by 0.69%, and services by 3.80% in April.
Inflation Breakdown and Central Bank's Response
The National Bank of Moldova expects an average annual inflation of 4.7% in 2024, according to its updated projection to be released on May 14. The central bank recently lowered the monetary policy rate by 0.15 percentage points to 3.6% at its May 7 board meeting, taking a more expansionary stance in response to the subdued growth and falling inflation.
Under the updated projection, the inflation forecast was raised slightly for the entire forecast period, with few exceptions. According to the latest forecast round, the average annual inflation rate will still remain below the 5% central target: 4.7% in 2024 and 4.5% in 2025.
The monetary authority’s decision to cut the policy rate by 0.15 percentage points to 3.6% is a small step after the rate was lowered by some 1 percentage point per month since December 2022, but significant given the already dovish rate.
Outlook for Moldova's Inflation
Moldova’s inflation rate continues to slow down, with the annual rate reaching 3.5% in April 2024. The slowdown is primarily attributed to the decrease in prices for services, particularly in the regulated utilities sector. However, the cost of other services, such as transport and tourism, has increased significantly compared to the previous year.
The National Bank of Moldova has responded to the subdued growth and falling inflation by lowering the monetary policy rate, indicating a more expansionary stance. The central bank expects an average annual inflation of 4.7% in 2024, according to its upcoming projection.
Despite the current slowdown in inflation, both natural gas and electricity prices face upward risks due to their historically low levels. As the country navigates through the economic challenges, the central bank and policymakers will need to closely monitor inflation trends and adjust their policies accordingly to maintain stability and support growth.
