Inflation further eases in Romania, to 2.1% in November

Romania's headline consumer price inflation further eased to 2.1% in November from 2.2% in October, dragged down by food prices that decreased in five of the past six months.

The inflation already reached the level projected by Romania's National Bank (BNR). It will probably further slide down in December to bottom out once excise duties and energy prices increase in January.

BNR envisages, under the latest inflation forecast, 2.6% annual inflation at the end of 2021 - in line with the center of the inflation targeting band.

Given the subdued economic recovery (and the Government's financing needs), expectations for a monetary policy rate cut in BNR's next board meeting on January 8 are rising. BNR operated its latest rate cut in August, but, at that time, it was expecting 2.6% yearend inflation in December 2020. BNR cut deep its yearend forecast in November after the October figures (2.2% inflation) were released.

Acting finance minister Florin Citu has been advocating for more rate cuts. He even volunteered to attend a monetary board meeting at BNR to make his point.

Expectations in the market regarding a rate cut on January 8 are mixed.

As of November, food prices (+3.8% yoy) remain the main inflationary driver in Romania. Meanwhile, non-food prices (+0.78% yoy) are dragged down by the fuel prices. The average price of services increased slightly above the CPI average, by 2.8% yoy.

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