Romanian Inflation Surprises To The Downside

By Stefan Posea & Valentin Tataru of ING Economics

Economic and Financial Analysis • Dec 13, 2023 at 5:27 AM EST

Price pressures fell more than expected in November, as inflation reached 6.7%, below our 7.3% estimate.

Price pressures fell more than expected in November, as inflation reached 6.7%, below our 7.3% estimate. We are adjusting our year-end forecast to 6.7% but still keep our 2024 year-end forecast of 4.7% on the back of strong wage data.

Inflation outlook - core to continue to remain above headline

(Click on image to enlarge)

Looking at the breakdown, the downside surprises were broad based, with monthly declines in food and non-food items, as well as a weaker-than-expected pick-up in services inflation. At a more granular level, fuel and energy applied the strongest downward pressure, complemented by a few other noticeable dips like basic food items and airfares. We adjust our 2023 year-end forecast to 6.7% but still keep our 4.7% 2024 year-end forecast. While today’s inflation data surprised positively, wage data for October shows a strong, private-driven wage growth of 17.1% (Q3 average: 14.9%). We believe that persistent wage growth is here to stay.

While the impulse from the private sector might not continue to be as strong into 2024, given a higher fiscal burden, minimum wage increases and public sector workers’ demands during the big electoral year will continue to add support to wage-driven inflationary pressures. As such, we are reluctant to extrapolate the current disinflationary trend to 2024 inflation.

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