Upside surprise in Romanian inflation complicates the easing cycle

January price pressures increased significantly in month-on-month terms compared to the previous month, especially in the food and services categories. This was partially expected given the hike in excise duties for fuel, tobacco, alcohol and VAT for some sugary items, recreational activities and few other targeted items.

Aside from what was implied by tax changes already, a few items saw particularly large increases. These include fruits and vegetables from the food section, as well as air fares, water distribution, rents, and postal services from the services section. Waters were somewhat calmer in the non-food section, where increases were slightly lower than we expected and upside pressures came mainly from fuels, as expected. Core inflation remained constant at 8.2%.

Overall, this reading removes some of the important gains achieved at the end of last year on the inflation front and pushes the profile slightly higher in the short term. More specifically, getting back towards the December levels looks now more likely in April than in March. More broadly, it might show as well that firms were confident enough to pass on the increased costs into prices amid the tax hikes, acting early on the pick-up in retail sales from the fourth quarter and strong real wage growth which is expected to continue into 2024.