Romania’s disinflation gives hope for July rate cut
<p>Romania’s headline inflation rate dropped from 5.9% in April to 5.1% y/y in May, coming well below the 5.6% Bloomberg median forecast as the regulated energy prices fell for the second month in a row, according to data published by the statistics office INS.</p>

<p>The core inflation also eased to 6.3% y/y in May from 6.7% y/y in April.</p>

<p>The steady disinflation, stronger than expected for the second month in a row, besides the core inflation dropping well below the monetary policy rate (7% since January 2023), supports expectations for a rate cut at the July 5 monetary board (there is no board meeting scheduled in June).</p>

<p>After the statistics office released the May inflation, Austrian group Erste revised its year-end inflation forecast to 4.0% y/y from 4.2% y/y and a 4.9% y/y official target of the central bank.&nbsp;</p>

<p>Erste analysts kept unchanged the core inflation forecast for December 2024 at 4.9%, as the unexpected May inflation figures were exclusively due to non-core items (energy prices).</p>

<p>“May inflation surprise cements our view for the first NBR rate cut in July by 25bp to 6.75%, and we expect the key rate to reach 6.0% by year-end,” the Erste Research note reads.</p>

<p>Erste analysts support their expectations on the disinflation surpassing the central bank’s expectations and, supplementary, the encouraging messages conveyed by the ECB’s recent rate cut.</p>

<p>“The National Bank of Romania (BNR) projected inflation at 6.0% by the end of the second quarter of the year (Q2 2024) in its May Inflation Report. Our preliminary estimate shows June CPI falling further to 4.7% y/y. The ECB rate cut in June should make NBR more confident about the timing of the easing,” argues Erste in its research note.</p>

<p>Detailed May inflation data show that food prices increased by 1.2% y/y, non-food prices by 6.4% y/y (energy prices dropped by 10.7% y/y), and the prices of services by 9.3% y/y.</p>

<p>On a monthly basis, consumer prices dropped by 0.1% m/m, dragged down by marginally lower food prices (seasonal effect) and 0.3% lower non-food prices (the natural gas price dropped by 8% m/m).</p>

<p><em>iulian@romania-insider.com</em></p>

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