Romania: May inflation brings little surprise
Romania inflation might have just seen the lowest for the year, but having said that we don't see inflation rising much from current levels. Nonetheless, today’s reading is unlikely to change the central bank’s future monetary policy decisions
Romanian inflation in May accelerated by just 0.05% compared to the previous month as the 0.3% monthly food inflation was the lowest in eight months. The 2.30% May inflation came in line with our view and just below Bloomberg consensus of 2.40%. Better behaved food prices should last through the summer which will help headline inflation to stay close to today’s print.
Cheaper fuel (-1.75% MoM) helped non-food prices to drop for the fourth consecutive month, this time by 0.2% versus April. Unless we get another major downside surprise from oil prices, we believe prices of non-food items will start to pick-up marginally, at least getting closer to zero growth in monthly terms.
Inflation and components
After today’s data, we maintain our forecast of 2.8% annual inflation in 2020, with the risk balance starting to be tilted lower. Nevertheless, there are many uncertainties ranging from the depth of demand contraction (retail sales were 22% down in April versus March) to the speed of internal and external recovery.
Industrial production has plunged by a dramatic 38.6% in April, dashing hopes of seeing much economic resilience in the second quarter.
Today’s reading is unlikely to change the central bank’s future monetary policy decisions.
We still believe that the rate-cutting cycle is over and – if at all – additional easing could come through looser liquidity management. On the FX side it is business as usual, with the central bank's firm grip on the currency offering little prospects of a more volatile leu.