Romania’s inflation neared 5.0% y/y in March driven by higher energy and food prices, the statistics office INS reported.

The monetary authority expects inflation to return soon towards lower values once the effects of the loose fiscal and income policies pursued by the government over the past years dissipate. It deferred hiking the monetary policy rate (2.25%) at this month’s monetary board despite such expectations. 

And indeed, such expectations are supported by the high inflation at this moment being partly driven by (non-recurrent) rising energy prices. Filtering out the effects of energy and fuels prices, the annual inflation would be only 2.65% y/y as of March out of which half is an effect of higher food (fruits, meat) prices.

Money market interest rates remain at relatively low values (ROBOR 12 month at 2.4%) amid abundant resources held by banks. The local currency also remains untouched by the rising inflation, hovering around RON4.65-RON4.7 versus the euro, thus resulting in real strengthening of the local currency. The widening trade (and Current Account) gap will, however, push the currency toward weaker exchange rates, fuelling inflation into a vicious circle.

The central bank expects inflation to ease later though the year down to 3.5% y/y in December. The year-end figure might not drop lower than 4%, according to the head of the CFA Romania association of financial analysts Adrian Codirlasu quoted by Ziarul Financiar daily.

Some 2.3pp of the 5.0% annual inflation in March was caused by higher fuel and energy prices, according to bne IntelliNews calculations The average price of fuels increased by 11.8% y/y, contributing 0.95pp to the overall 5% y/y inflation. Electricity, gas and heating contributed altogether 1.34pp to the annual inflation, mainly due to the 18% y/y higher electricity price. Overall, the prices of the non-food items in the consumer basket increased by 6.6% y/y as of March and contributed 3.0pp to the 5.0% y/y inflation.

Food prices increased by only 4.0% y/y on average (contributing 1.3pp to the annual inflation) but the prices of some particular goods increased significantly (eggs +29% y/y, butter +22%). Across broader categories, the price of meat increased by 4.9% y/y, contributing 0.39pp to the annual inflation.

The fees paid for services increased on average by only 2.9% y/y in March.