Romania: Inflation starts to descend

January inflation marked the beginning of what we believe to be an extended period of lower inflation numbers.

Starting next month, we expect headline inflation to start coming in within the central bank's upper target band range (between 2.5% and 3.5%) for the entire 2-year forecast horizon.

In 2020, the low point should come in April-May when we could see prints as low as 2.7%. However, what is slightly more concerning is that core inflation is likely to remain 0.2-0.4bp above the headline figure for the entire forecast horizon, without meaningful prospects for consolidating lower.

Back to January inflation, except for important base effects (almost 0.4ppt), the 0.4% monthly advance versus December 2019 came mainly on the back of higher food prices which advanced by almost 1.0% driven by important advances in fresh fruit and vegetable prices of c.2.0% and c.3.0% respectively.

Non-food items came virtually flat, as the anticipated drop in the fuel price (caused by the elimination of the special excise duty starting 1 January) was balanced by – also anticipated -higher tobacco prices and heating energy.