Romania’s above-expectations 5% y/y February inflation questions yearend target, rate cut plans

The headline inflation in Romania edged marginally above 5% y/y in February from 4.95% y/y in January, but well above the 4.7% y/y market consensus and probably also above the central bank’s expectations – thus putting into question the monetary authority’s (recently revised) 3.8% y/y inflation forecast.

The monthly inflation remained at an elevated rate in February (+0.9% m/m) amid a 1.1% rise in non-food prices and a 0.7% rise in food prices and services fees.

CORE2 inflation decelerated marginally in February at 5.0% y/y from 5.1% previously, remaining 0.2 percentage points above the central bank’s 4.8% forecast for end-Q1.

This price overshoot in February was primarily driven by higher-than-anticipated natural gas prices, which rose 9.1% m/m in the month, Erste Research analysts explain the discrepancy between their expectations and the actual inflation.

Erste analysts expected only a 5.0% m/m gas price rise in February, but higher-than-expected consumption put the average prices up. The regulated natural gas price returned in February 2025 at the same level as it was in February 2024.

Erste analysts believe that February inflation came as a negative surprise for the central bank as well, making it feel less inclined to cut interest rates this year.

“We continue to believe that the first rate cut of 25bp will be at the August meeting, but the 5.75% terminal rate for this year might be at risk of ending higher,” the Erste Research report reads.

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