Romanian Inflation Quickens Further as Political Spat Hurts Leu

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Romanian inflation accelerated to its fastest since 2018 as a political crisis sent the leu to a record low and complicated decision-making for the central bank.

Consumer-price growth quickened to 5.25% from a year earlier in August, compared with 5% in July, data released Friday showed. That’s above the 5.2% median estimate in a Bloomberg survey of 10 analysts. Inflation was up 0.2% from the previous month.

As higher energy tariffs trigger price increases across the board, the central bank has refrained from following Hungary and the Czech Republic in lifting borrowing costs, preferring instead to use money-market tools to curb liquidity.

While some board members still see the price shock as transitory, Governor Mugur Isarescu has said interest-rate hikes are in sight, but only at the right time. Romania, like other parts of eastern Europe, are bracing for a new wave of the pandemic. 

• The acceleration in price growth may not be done yet: Inflation is expected to end the year at about 5.6%, according to the latest central bank forecast, only re-entering the 1.5%-3.5% target band in 2022
• The weaker leu could continue to be a factor for prices, with the government facing a confidence vote that could topple Prime Minister Florin Citu
• The pandemic remains one of the biggest uncertainties. The number of new cases has risen rapidly in the past two weeks, prompting localized restrictions
• “Inflation is set to print even higher in the coming months and may even flirt with 6% in October-November,” said Valentin Tataru, an economist at ING in Bucharest. “While we largely agree with the central bank’s view for a transitory inflation bout, risks remain skewed to the upside and missing its inflation target in 2022 as well doesn’t look such a remote possibility”

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