Romania’s headline inflation accelerated to 3.2% y/y in November from 2.6% y/y in October, hitting the four-year maximum, according to data released by the statistics office INS. The harmonised consumer price index (HIPC) inflation accelerated to 2.6% y/y from 2.0% y/y in October.
The sharp rise in the prices of some food items (eggs, fruits, meat), some of them imported, and the energy price (electricity, fuels) increase contributed, to the inflationary pressures besides the weakening of the local currency.
Demand-side inflationary pressures were caused by the double-digit increase in the net wages through the year.
Romania’s central bank expects headline inflation to accelerate in Q1 2018, due to base effects caused by the VAT rate cut last January, but it will address any increase above expectations, central bank governor Mugur Isarescu stressed after the monetary board meeting on November 7. The inflation scenario revised by the central bank in November points to prospects for a significant pick-up in inflation over the short term horizon (steeper than previously envisaged), followed by a slowdown starting with the final quarter of 2018. The annual CPI inflation rate is projected at 2.7% at end-2017, 3.2% at end-2018 and 3.1% at the projection horizon, at the end of Q3 2019.
Consumer prices increased by 0.66% m/m in November after the 1.28% m/m advance in October. Nearly one-third of the rise of the overall consumer prices in November (0.18pp) was caused by the 29% surge in egg prices — far above any seasonal pattern. Compared to November 2016, egg prices soared by 43% y/y and the item contributed 0.26pp to the 3.2% y/y overall consumer price inflation.
The electricity price rising at fast pace this year amid a combination of scarce production capacities in the region and market speculations, and the car fuel prices rising in line with the crude oil prices, were the main contributors to the rise of the consumer prices. Thus, the residential electricity price soared by 12.2% y/y as of November, contributing 0.74pp to the 3.2% y/y CPI inflation. A further increase in the electricity price is expected in early 2018, as the residential electricity market will be fully liberalised as of January 2018. Car fuel prices increased by 6.5% y/y in November and contributed 0.54pp to the 3.2% y/y inflation. Overall, the two energy items contributed 1.3pp, or more than one-third, to the annual inflation in November.
The local currency weakened by 2.7% versus the euro in November, but expectations of further weakening appear to have had a proportionally stronger impact on consumer prices.