CPI inflation moderated to 3.43% y/y in November from 4.25% y/y in October, according to figures of the INSSE. The slowdown was steeper than anticipated, as the majority of analysts polled by Reuters projected inflation to ease to 3.70% y/y. The primary reason seems to be a high base effect from electricity prices and drop in fuel prices. Thus, non-food prices reported the strongest contribution decrease to headline inflation, down to 1.95pps in November from 2.42pps in October. Besides, the lingering base effect from administered price hikes at end-2017 would keep pulling down inflation by the end of this year. Nevertheless, non-food inflation still keeps the biggest contribution to the CPI in November, following relatively stronger fuel price growth this year. Food prices also kept on decelerating their growth, easing to the lowest level in more than a year, at 2.86% y/y in November.
Monthly prints still reflect high volatility in headline inflation, with effects from seasonal foods, fuels and administered prices chiefly influencing monthly price dynamics. For instance, prices excl. seasonal foods, fuels and administered prices rose by 0.21% m/m in November, compared to the headline 0.13% m/m drop.
Overall, the NBR’s end-year inflation forecast, at 3.5%, will be most probably met. The central bank still expects some inflation-fueling factors in the autumn, but it is prepared to offset them using liquidity management instruments if needed. Nonetheless, it became almost clear that although the end-year inflation projection is still at the upper limit of the targeted inflation interval (2.5%+/-1pp), the central bank is unlikely to hike rates in the near future. Moreover, CPI inflation seems to decelerate faster than expected, while the NBR several times intervened in the money market with liquidity injections this autumn.