Romania’s CPI increased by 3.23% y/y in November, accelerating from the 2.63% y/y rise a month before, according to a release of the statistical office published today. The pick-up was stronger than the market expectations and pushes the indicator further in the upper side of the central bank’s target interval of 2.5%+/-1ppt. The largest contribution to the CPI increase came again from the non-food sector, where the price hikes for electricity, gas and fuels keep inflationary pressures strong. The contribution to inflation growth from the food sector also rose compared to the previous month, as prices for food increased the strongest since mid-2013. In addition, the services sector came with a slight positive contribution to the CPI increase in November, after constant negative contributions reported this year.
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 pressures at the beginning of the year, earlier this summer and in the autumn months.
Nevertheless, the monthly inflation softened in November, even if the pick-up in services prices supported the monthly CPI rise in the period. The price growth moderation in the food sector was largely triggered by some price drops for fruits and vegetables, sugar and coffee. In the non-food sector, prices for fuels kept on rising, but the electricity price flattened m/m. Prices on tobacco products also added monthly inflationary pressure, due to higher taxes. In the services sector, only tariffs on road transport slightly fell m/m in November.
Overall, the headline inflation continued to accelerate in November. The pick-up was already announced by the central bank, which expects a peak of nearly 4.00% in Q1 next year. As recalled, the monetary authority revised notably up the CPI inflation to 2.7% for end-2017 from 1.9% projected before. The inflation expectations point to further rise of the food and fuel prices by the end of this year, so the end-year CPI might probably remain above the central bank’s forecast. 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%.