CPI inflation moderated to 3.49% y/y in September from 4.89% y/y in August, according to figures of the INSSE. Inflation slowed down faster than market expectations, which indicated a slowdown to 3.70% y/y. Non-food and food inflation continued to diminished their contributions to headline inflation by 30bps and 10bps in September, respectively. In addition, there was no inflationary pressure from services in September, mirroring fading effects of the new telecom sales tax introduced earlier this year.
Monthly inflation remained low, even though slightly picking up when compared to August. The increase was driven by faster monthly price growth in services and by a milder increase in non-food prices. Also, food prices reported a less significant drop in September, because the effects of cheaper vegetables were almost completely offset by more expensive meat and cheese. Nonetheless, the most important deflationary components in September were some volatile foods and fuels. At the same time, core inflation remained high, which means that excess demand is not yet declining enough, as the central bank has recently commented.
Generally, CPI growth continued slowing steeper than expected in September just on top of the central bank’s target interval (2.5%+/-1pp), mainly over cheaper fuel and some foods. The latter was generated by an increasing consumption of locally produced vegetables, which also discouraged food imports. Still, external developments also helped to moderate CPI growth in August and September. We think that inflationary pressure will be milder than usual this autumn due to a delay in administered price hikes, caused by the recent power switch in the government. Therefore, we expect inflation to remain contained and might even remain below the NBR’s end-year forecast for 2019, at 4.2% y/y, even if consumption is still strong and the central bank has not touched the policy rate.