Romanian inflation slowed as expected in August

August inflation in Romania brings a mixed bag of data to the table. While nothing seemed particularly out of order, we did raise an eyebrow seeing food inflation advancing by 0.3% versus the previous month, with some items such as vegetables and potatoes posting price increases against what would have normally been pretty steep seasonal price drops. In annual terms, food prices accelerated to 4.2% in August, from July’s low of 1.7%. Nevertheless, the higher food prices have been largely offset by lower-than-expected non-food prices. That said, the 0.03% contraction in non-food prices versus the previous month has been driven largely by cheaper fuel and a lower-than-expected electricity price increase. Benefiting from a large base effect, the annual acceleration of non-food prices slowed to 4.3%, from 6.9% in July.

And that brings us to service inflation, which seems to remain as sticky as it can get, likely on the back of still robust wage advances. The monthly service price decelerated somewhat in August to 0.5% versus 0.7% in July, but that was still enough to show an actual acceleration in annual terms from 8.5% in July to 8.6% in August. Core inflation also posted an acceleration to 5.8%, from 5.5% the previous month. Our projection for service prices shows that we are likely to close 2024 below but not far from 7.0%, with core inflation likely approaching but remaining above the 5.0% level.