Romania’s CPI increased by 1.77% y/y in September, accelerating from the 1.15% y/y rise a month before, according to a release of the statistical office published today. The pick-up was above the 1.60% y/y estimated in a Reuters poll of analysts and was mainly triggered by a more notable jump of food prices. We remind that the headline inflation entered positive territory at the beginning of this year and the increases almost constantly accelerated since then, except for August. The speeding up was fuelled by the low base, especially in food, by the still robust domestic demand and by the imported inflation mostly from fuel prices, despite the additional tax cuts implemented by the government earlier this year. The unexpected jumps of some administrated prices also added some pressures at the beginning of the year, earlier this summer and in September.
In more detail, the inflation acceleration in September was mainly triggered by a stronger growth of the food prices in annual terms in the month. Therefore, the food CPI increased its contribution to the overall CPI to 0.95pps from 0.55pps in August. The non-food segment came with 0.86pps positive influence to the CPI growth, which is by 0.15pps more than in the previous month. The rising inflationary pressures from the non-food segment were mostly prompted by fuel prices, affected by the external developments and by the supplementary fuel excise increase on the domestic front. The latter influence would probably persist in the following period, because the fuel excise increase was applied in two stages, as of mid-Sept and as of Oct 1. The services segment continued coming with negative contribution to the CPI calculation in September, but notably milder than in the previous periods. In fact, the deflation in services was the lowest recorded this year in September, which hints that prices in this segment might turn to growth by the end of the year, partially over the base effects and due to the fading effects of the government’s measure to eliminate more than 100 non-tax levies earlier this year, which pulled down some service tariffs.
In monthly terms, the CPI recorded the strongest rise so far this year, fuelled by robust price growths in all three major fields, but especially in the food segment. Food prices increased m/m in almost all categories, except for fruits, with the most significant rise reported by vegetables. The monthly inflation in the non-food segment had as major driver the fuels and in the services field the road transport and the telephone tariffs increased the most in September. Some noticeable deflationary pressure came from the air transport tariffs, which hold back a more significant services CPI monthly increase in the month.
Overall, the headline inflation might have entered an acceleration trend broadly expected by the market and the central bank. Moreover, the monetary authority expects the following month to bring a slightly faster than previously expected CPI rise, on the back of stronger price growths in volatile and administrated prices. The base calculation of the headline inflation would gradually rise in the following months, but we think that the price increases in energy and food would be strong enough to keep the CPI rise on acceleration trend, nearing 2.00% by the end of 2017. We note that the NBR revised up its inflation estimation for the end of this year to 1.9% from 1.6%, but still within the target interval (2.5%+/-1ppt). The new quarterly Inflation Report will be released at mid-Nov and the monetary authority might very likely revise up again its inflation forecast for the end of the year, in our view.