Romania’s consumer price index decreased by 0.67% y/y in November, steepening from the 0.43% decline the month before, according to a release of the statistical office published today. The CPI fall in November was mainly fuelled by stronger deflation in the non-food segment, which had a negative 0.56pps contribution to the overall CPI in the period. Prices for services decreased the strongest though y/y in November, but due to the segment’s lowest share in total CPI calculation, its negative contribution was smaller (0.30pps). Meanwhile, the food prices continued rising, at an even faster pace. Therefore, the food CPI continued rising for the sixth consecutive period, while deflationary pressures from the non-food and services persisted. The food inflation is fuelled by robust demand and by the low base triggered by the VAT rate cut implemented in June last year. The demand for non-food is also strong and even on a vigorous increasing trend, but the deflation in energy offset the upward pressures on the overall CPI.
The monthly inflation moderated significantly in November, following a stronger bounce a month before. The softer monthly price rise in the period was generated by milder inflation in food and non-food and by a slight price fall in services. Prices increased softer in the food segment mainly over a stronger price decrease for fruits, while in the non-food category the household appliances came with negative influence on the CPI’s monthly dynamics.
Broadly, the CPI continued falling in November, in line with the central bank’s expectations. In fact, the authority sees the index continuing to post falls by the end of this year, when a 0.4% annual price drop is projected. The NBR initially estimated a CPI increase in December, but readjusted its forecast due to steeper-than-expected imported deflation, the reschedule of the administrated price increase and due to a stronger negative impact of the standard VAT rate cut to 20% from 24% implemented at the beginning of this year. Nevertheless, the demand remains strong and the wage hikes implemented this year and scheduled for 2017 might keep on fuelling inflationary pressures. Hence, the central bank expects the CPI to start rising next year, but in the lower band of the target interval (2.5%+/-1pp).