Romania's inflation drops less than expected in February

Romania's headline inflation dropped to 7.2% y/y in February, slightly above the 7.1% consensus expectations, from 7.4% y/y in January, according to the statistics office INS.

On the upside, the core inflation edged down by 0.5 percentage points (pp) from 8.2% y/y in January to 7.7% y/y in February, according to our estimates.

At the latest monetary policy meeting in mid-February, central bank governor Mugur Isarescu mentioned the option of rate cuts later this year, but only after the core inflation rate enters a firm downward path.

The February figures increase the uncertainty associated with the expected rate cuts calendar. Partly based on governor Isarescu's comments, the analysts are expecting the first rate cut in May.

"Of course, we discussed a potential calendar for reducing the monetary policy interest rate," Isarescu said, adding that the monetary authority will take such a step only after inflation is confirmed on a downward trend for at least two months after January.

Consumer prices thus increased by 0.8% m/m in February and by 1.9% ytd in the first two months of the year – compared to a 4.7% y/y full-year inflation projected by the central bank.

The consumer prices should rise by only 0.3% m/m in March (which is highly unlikely given the impetus of the prices in the first two months of the year) to remain within the 6.5% y/y target set by the central bank for March.

While the energy prices remained more or less constant over the past year, the food prices increased by 4.5% y/y (apparently thanks to a government price capping scheme), the non-food prices rose by 7.8% y/y, and the average prices paid for services surged by 11% y/y.

The fees charged by the water utility companies increased by 19% y/y, medical services' fees rose by 14% y/y, and the prices paid in restaurants and cafes advanced by 13% y/y.

(Photo source: Tero Vesalainen/Dreamstime.com)