Romanian inflation inched down ahead of the energy shock bite

Food and services inflation matched our expectations at 7.8% and 11.3% year‑on‑year, respectively. Non‑food inflation came in slightly higher than anticipated, at 9.4%, mainly due to stronger price increases in fuels and tobacco.

Services inflation remains somewhat sticky, although the trend is gradually softening. Today’s wage data supports this view: annual average wage growth slowed to 3.6% in January, a level typically associated with recessionary conditions.

Our long‑held view has been that inflation would hover between 9% and 10% until the summer, then decline more visibly as last year’s tax hikes and electricity market liberalisation drop out of the annual comparison.

However, the emergence of a new geopolitical conflict - with no clear resolution in sight- now suggests additional upward pressure in the March-April readings, primarily through higher oil prices. This would temporarily push headline inflation back above 10.0%.

While favourable base effects expected over the summer still stand, the level of inflation at which the NBR feels comfortable beginning to cut rates becomes increasingly important. With this new oil shock, an earlier easing cycle looks less likely.

Finally, this fresh supply‑side shock hits an economy already showing stagflationary features. Weak January retail sales and industrial production data, combined with the expected near‑term rise in inflation, point to increasing economic strain and the likelihood of another quarterly GDP contraction.