Romania’s CPI increased by 1.15% y/y in August

Romania’s CPI increased by 1.15% y/y in August, moderating from the 1.42% y/y rise a month before, according to a release of the statistical office published today. The headline inflation entered positive territory at the beginning of this year and the rises almost constantly accelerated since then, fuelled by the low base, by the still robust domestic demand and by the imported inflation mostly from fuel prices, despite the additional tax cuts implemented by the government earlier this year.

The inflation moderation in August was mainly triggered by a weaker growth of the food prices in annual terms in the month. Therefore, the food CPI diminished its contribution to the overall CPI to 0.55pps from 0.83pps in July. Some milder slowdown influence also came from the non-food, where the upward contribution diminished to 0.71pps from 0.76pps. Meanwhile, the prices in services kept softening their annual decrease and added again lower negative contribution. The price fall in services was partially generated by the elimination of 102 non-tax levies implemented by the government at the beginning of 2017, which pulled down prices for many public administration services. Nevertheless, the effects of the tax cuts and eliminations are fading and the trend might very probably continue in the following periods.

In monthly terms, the prices fell again only in the food segment, particularly for fruits and vegetables, which have a high import component, despite the good agricultural year. In fact, the increased production and cheaper imports pushed the local producers to diminish prices for the locally produced food. Similar trends were reported in the previous period too and might continue. In the non-food segment, the monthly inflation was milder than in July. Prices fell insignificantly for some chemical products and medicines. The electricity price, which rose strongly in July, remained flat m/m in August, so there was no inflationary pressure from that area. The monthly CPI in services remained on the rise and even accelerated, as there were several relatively higher monthly price hikes for urban transport and some industrial services.

Overall, the CPI growth remained above 1.00% in August, but softened compared to July, when the electricity prices jump mostly fuelled a stronger pick-up. The very low base in the food segment and the still robust demand, especially for some non-food products would very likely keep the CPI rise around 1.00% in the following periods. The food sector would probably remain the major inflationary component and services might keep adding negative contribution. Yet, services have a low weight in total CPI calculation, so inflationary pressures, especially from abroad and from the domestic energy prices would likely push the CPI on acceleration trend. We remind that the central bank already announced that the CPI might speed faster than initially expected over some unpredicted hikes of the electricity price and faster rise of imports prices. Hence, the monetary authority revised up its inflation estimation for the end of this year to 1.9% from 1.6%, but still within the target interval (2.5%+/-1ppt).

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