Romania’s consumer price inflation accelerated to 1.77% y/y in September from 1.15% y/y in August as prices increased by 0.5% in the month, the statistics office announced. The annual inflation hit the highest rate since November 2013.

The figure was in line with the central bank’s projection (1.6% y/y), corrected for the supplementary inflation added by the fuel excise tax hike. Considering the total impact of the fuel excise tax hike alone, the headline inflation will hit the 2.5% y/y centre of the inflation targeting band by the end of the year while supplementary factors (electricity prices mainly, but also expectations for local currency weakening) might further push it to 2.7% y/y (versus 1.9% y/y under the latest central bank projection). 

The central bank expects (not counting the impact of the excise tax hike) inflation to accelerate up to 3.6% at the end of Q1 2019 but unexpected tax hikes made by the government might prompt upward revisions.

Of the 0.5% m/m inflation in September, 0.18pp was prompted by the car fuel excise tax hike decided overnight by the government and partly enforced as of September 15 (thus being only party visible in September prices). Another step was the excise tax hike, of the same magnitude, that was enforced as of October 1. End-user car fuel prices increased in September by 2.2% m/m, versus a total projected impact of the excise tax hike estimated at around 10%.

The electricity and natural gas price hikes made in October will also fuel inflation.

Food prices are also rising significantly, at rates of 2%-3% y/y in recent months. In September, the food prices increased seasonally by 0.54% m/m, but the annual growth has also accelerated to 2.74% y/y.