Romania’s retail sales increased by 14.1% y/y in May, accelerating from 4.6% y/y in April, the country’s statistics office reported on July 5. The workday and seasonally-adjusted index advanced by 4.3% m/m in May, after the sluggish 0.4% m/m increase in April.

Retail sales have recently been driven by the non-food segment. Thus, the sales for this segment increased by 15.4% y/y in May and by 11.8% y/y in April-May, after a 9% y/y increase in Q1. In contrast, the food sales increased by 13.3% y/y in May and 6.2% y/y in April-May after a 1.7% y/y advance in Q1. From a broader perspective, the sales of non-food items have increased much more in the past six years since they bottomed out in 2011, compared to the average sales or the food sales. Also compared to the pre-crisis levels, the food prices recovered to higher values compared to the food sales.

May figures indicate strengthening retail sales, yet not at double-digit levels as seen until last August. Government rhetoric regarding the income policy in the public sector and mandatory wage hikes, rather than actual wage hikes during the period, have fueled consumers confidence which keeps sales advancing at high rates. Government deferring the wage hikes in education and health care previously expected as of July 2017 will prevent a further significant rise in households’ revenues, but the sales figures will remain more under the impact of the public rhetoric. Despite being already promulgated, the unified public wage bill will create in January 2018 effects that can not be evaluated yet. Further wage hikes are inked in the law, but the negative impact of amendments to the Fiscal Code might make them much smaller in magnitude.

The sharper advance in May was predictable based on the Easter seasons occurring at different times in 2016 and 2017, but the magnitude of the acceleration in May was stronger than expected. The sales in April-May taken together to smooth the effects of the Easter season still increased by 9.2% y/y after the 6.9% y/y increase in Q1. Still remaining in the single-digit area, the sales growth is robust witnessing high consumer confidence driven by the recent wage hikes and the outlook of a further rise in disposable incomes. The rhetoric about the unified pubic wage law and sharp hikes of the minimum statutory wage have supported the consumption euphoria while the low interest rate eased the cost of households’ consumer and mortgage loans thus making available a larger share of their income for spending.