CPI increase speeds to 2.63% y/y in Romania

Romania’s CPI increased by 2.63% y/y in October, accelerating from the 1.77% y/y rise a month before, according to a release of the statistical office published today. The pick-up pushes the indicator in the upper side of the central bank’s target interval of 2.5%+/-1ppt, despite the higher CPI calculation base. The move was expected by the monetary authority and was mostly grounded on the relatively stronger price increases for electricity and fuels, the latter having as explanation the second fuel excise rise implemented in October.

We remind that the headline inflation entered positive territory at the beginning of this year, despite the 1ppt cut of the VAT rate. Moreover, the increases almost constantly accelerated since then, except for August, fuelled by the low base, especially in food, by the still robust domestic demand and by the imported inflation mostly from fuel prices. The unexpected jumps of some administrative prices also added some pressures at the beginning of the year, earlier this summer and in September and October.

In more detail, the inflation acceleration in October was mainly triggered by a stronger growth of the non-food prices in annual terms in the month. Therefore, the non-food CPI increased its contribution to the overall CPI to 1.48pps from 0.86pps in September. The food segment was the major inflationary element in the previous month and came with 1.22pps positive influence to the CPI growth, which is by 0.27pps more than in the previous month. The rising inflationary pressures from the non-food segment were mostly prompted by the fuel and electricity prices, whereas the inflation acceleration in the food segment was largely due to the low base. The services segment continued coming with negative contribution to the CPI calculation in October, slightly stronger than in the previous periods.

The monthly price growth was the strongest since January 2013 in October, also fuelled by robust price growth acceleration in the non-food and food segments. Food prices increased m/m in all categories, with the most significant rises reported by vegetables and eggs (nearly 6.7% m/m). The monthly inflation in the non-food segment had as major drivers the fuels and the electricity price growths. Meanwhile, the mild inflation in the services sector was dragged behind by a more significant decrease of the air transport tariffs. Nevertheless, the prices for railway and road transport, which have a large administrative component, kept on rising and would most probably continue the upward trend in the following periods, in line with the NBR’s expectations regarding the administrated price dynamics this year.

Overall, the headline inflation entered the expected acceleration trend. Moreover, the monetary authority expects the following months to bring a slightly faster than previously expected CPI rise, as the NBR announced in its latest, recently released Inflation Report. The CPI inflation was revised up notably to 2.7% for end-2017 from 1.9% projected before and prices are seen to keep on speeding up growth to around 4.0% at the beginning of next year. However, the NBR thinks that the spike at the beginning of next year would be temporary and the CPI rise would return inside the target interval, ending 2018 at 3.1%.

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