Romania’s end-December inflation overshoots expectations

Romania’s end-December inflation overshoots expectations
By Iulian Ernst in Bucharest January 15, 2018

Romania’s headline inflation accelerated to 3.3% at the end of December, from 3.2% y/y one month earlier, the statistics office INS reported. HICP inflation calculated based on the common European Union basket of goods and services remained steady at 2.6% y/y. 

The headline figure overshoots central bank’s 2.7% projection, but remains within the +/-0.5pp uncertainty band. Nonetheless, the monetary authority hiked the monetary policy interest rate by 25bp to 2% at its January monetary board (in line with the money market developments) and more hikes are expected later in the year.

The central bank lifted in November its yearend inflation projection from 1.9% y/y to 2.7% y/y, largely to reflect the car fuels excise tax hike. A revised Inflation Outlook is scheduled for February, but governor Mugur Isarescu has hinted that the revision will not bring major changes to the outlook. 

The annual CPI inflation rate is projected in the November 2017 Inflation Outlook at 3.2% at end-2018 and 3.1% at the projection horizon, at the end of Q3 2019. The uncertainty associated to the forecast is, however, rather wide: +/-1.7pp for end-2018 and 2+/-2.0pp for end-Q3, 2019.

The uncertainties and risks surrounding the inflation outlook stem mainly from the fiscal and income policy stance, the volatility of international oil prices, and from the pace of euro area and global economic growth, also amid a slow normalisation of the monetary policy pursed by the major central banks, the central bank commented after the January 8 monetary board.