Romania’s CPI increased by 4.95% y/y in March, accelerating again, from the 4.72% y/y rise a month before, according to a release of the statistical office published today. The inflation speeding was slightly above expectations, as a Reuters poll indicated a 4.90% CPI rise in March. In fact, the CPI growth is almost up to 5.00%, the rise initially expected to be reached closer to H2. Hence, the CPI increase remained well above the central bank’s target interval (2.5%+/-1ppt) for the sixth consecutive month, confirming the pilling up of inflationary pressures in the economy and further fuelling higher inflation expectations despite the central bank’s monetary tightening.
The largest contribution to the CPI increase came again from the non-food sector, where the price hikes in energy keep inflationary pressures strong. The second largest contribution to the CPI rise came from the food sector. Moreover, both components increased their input to the CPI growth compared to February. The price dynamics in services also positively contributed to the CPI rise acceleration, but the sector keeps the lowest share in CPI calculation this year, even if slightly higher than last year. The services inflation insignificantly lowered its contribution to the overall CPI rise in March, which reflects that the low base effects start to fade. We remind that the government eliminated about a hundred taxes and non-tax levies at the beginning of last year, which pulled down numerous service tariffs.
Looking at the monthly developments, the inflation remained at about 0.30% similar to the rise recorded in February. The monthly inflation was again mostly fuelled by higher price growths in the food sector, specifically vegetables and fruits. Prices in the non-food sector moderately rose m/m in March in almost all fields, except for an insignificant drop in thermal energy prices. Administrated prices remained on the rise, but not the strongest in March. Service prices accelerated the most their monthly increase, mostly on the back of a relatively robust increase of air transport tariffs.
Broadly, the inflation rate keeps accelerating, as the central bank previously warned. The inflation fuelling factors were represented by the low base, the effects of the fiscal and income relaxation policies implemented last year and growing energy prices. As recalled, the monetary authority sees the inflation reaching a peak in the first quarter of 2018, followed by some growth moderation in the last part of the year, which should bring down the CPI increase inside the target interval, to 3.1% by the end of the year. However, latest developments do not signal moderation. Thus, we think that the inflation rate peak has not yet been reached. Moreover, the government keeps promising wage increases, fuelling inflation expectations. Meanwhile, the NBR has unexpectedly kept the policy rate on hold in the previous MPC meeting, which would very probably delay rates increase on savings. The NBR missed the inflation forecast for the end of last year, due to materialization of risks from the fuel and administrated price dynamics and from the government’s fiscal and income policies. The same upside-tilted risks on the inflation outlook persist this year and the strong inflation expectations might put additional pressure on the CPI developments. Therefore, we think that the CPI rise would very probably speed up again in the following period.