UPDATE 1 - Romania's Oct deflation softens to 0.4% y/y

UPDATE 1 - Romania's Oct deflation softens to 0.4% y/y hxdbzxy/Shutterstock.com

BUCHAREST (Romania), November 11 (SeeNews) - Romania's annual consumer price deflation decelerated to 0.4% in October from 0.6% in September, data from the statistics office, INS, showed on Friday.

Food prices were up 0.49% on the year in October, while non-food prices fell 0.8%, INS said in a statement.

Prices in the services sector went down 1.11%.

On a month-on-month basis, the consumer price index (CPI) rose 0.43% in October. Food prices rose 0.53%, non-food charges were up 0.39% and services prices increased 0.33%.

On Thursday, Romania's central bank, BNR, kept its 2016 inflation forecast for this year unchanged at -0.4% and raised its projection for next year to 2.1%. In its previous inflation report released in August, BNR said it expected annual inflation to remain in negative territory longer than previously expected, until the end of 2016. Romania's end-2015 deflation stood at 0.9%

Commenting on the figures, ING Bank analysts said that October consumer price inflation was in line with their estimates, but a bit above market consensus of -0.5%.

"Overall, the data point to signs of domestic underlying inflation perking up amid strong wage growth and fiscal easing leading to robust private consumption, supporting our call for monetary policy tightening to start as soon as February 2017," ING Bank analysts said in a daily snap analysis of financial markets on Friday.

For their part, Erste Bank analysts said they have been expecting deflation to moderate to 0.5% in October, while market consensus was a bit more off mark, expecting deflation of 0.6%.

"Our baseline scenario remains consistent with annual inflation of -0.6% in December, followed by a limited rebound at the end of March 2017, mostly due to a base effect. For the next year, we see Eurozone CPI as more likely to dampen the upside pressures on inflation, emerging mainly from a positive output gap, local food prices and likely higher inflation expectations. We are looking for the central bank to leave the key rate unchanged next year, as we see inflation hovering just above the lower end of the target band (1.5%-3.5%)," Erste analysts said in a short note on Romania.

Raiffeisen Bank analysts also said that October deflation slightly outpaced their expectations.

"The positive dynamics was shared by all three components as prices of food products advanced by 0.5% mom, prices for non-food products by 0.4% mom and tariffs for services by 0.3% mom. As we expected, the exchange rate depreciation as well as the increase of oil price were among the drivers of consumer prices’ dynamics in October," Raiffeisen Bank analysts said in a daily market report.

Romania's annual inflation rate turned negative in June 2015 after the scope of a 9% cut in VAT rate was expanded to include all food items, non-alcoholic beverages and food service activities. In addition, Romania cut its standard VAT rate from 24% to 20% from the start of 2016.

On November 4, BNR maintained its monetary policy rate at a record low of 1.75%, in line with analysts' expectations. The bank last changed its monetary policy rate in May 2015, when it cut it by 25 basis points.


(1 euro=4.5125 lei)

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