Romanian Inflation Rises to 10-Month High, Limiting Easing Space
(Bloomberg) -- Romanian inflation accelerated to the highest level since March as rising energy prices may prompt the central bank to postpone more policy easing after last month’s interest-rate cut.
Consumer prices increased 3% from a year earlier in January compared with a 2.1% advance in December, data published Friday showed. That’s above the 2.5% median estimate in a Bloomberg survey of economists. Inflation was 1.3% from the previous month.
Key Insights
- Inflation, for which the official target is 2.5%, remains manageable and the central bank may still trim borrowing costs from a record-low 1.25% to help the economy recover from the pandemic. The benchmark rate is still among the Europe Union’s highest
- In any case, the effect of higher energy tariffs on inflation may be short-lived. Central bankers expect the impact to fade toward year-end, when price growth is forecast at 2.5%
- The leu will also play a role in decision-making. Poland has stepped in to cap gains in the zloty in a bid to buoy exporters. Romania has always fretted about volatile capital inflows from abroad based on its comparatively high benchmark rate
What Economists Say
- “Inflation is likely to pick up in the medium term,” Goldman Sachs economist Kevin Daly said in a note to clients. “We expect the central bank to leave rates on hold in the near future but, if global risk sentiment continues to improve, a further reduction in interest rates is possible”
- “The uncertain evolution of energy prices will only add to caution since the central bank is firmly focused on short-term conditions when setting interest rates,” Dan Bucsa, an economist at UniCredit in London, said in a note to clients. “A rate cut to 1% may be postponed to the second half of the year.”
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