Romanian inflation edging higher in February

February inflation printed 3.2%, a touch above our 3.1% estimate, which is due exclusively to a marginal increase in electricity prices versus our expectation of a small decrease. After the sharp monthly spike in electricity prices in January (+18.4%), it seems that consumers are in no hurry to look for alternatives on the competitive market. This has helped core inflation to stay at 4.3% in February -similar to January, and significantly above the latest central bank projections. We expect the core inflation rate to remain firmly higher than headline inflation at least through the second quarter of 2021, followed by a stabilisation in the 3.0-3.5% range for the rest of the year.

While on the upside there are still plenty of factors which can still surprise us, it is relatively difficult to find some corresponding downside influences, except for some negative pandemic-related surprises. Looking forward this year, we already have a rather benign view on both food and non-food prices while on the services side we feel comfortable in anticipating some short-term price pressures, given the prospects for the economy to work at full speed in the second half of the year.