As of November 2024, Romania experienced a CPI growth of 5.1% YoY, primarily driven by persistent increase in service prices, along with inflationary pressures on food and non-food goods due to heightened retail activity. In terms of HICP, Romania continues to record higher inflation at 5.4% compared to Euro Area countries.
After two months of easing inflationary pressures, October marked a reversal of the trend, with November data indicating a continuation of persistent inflationary pressures. Therefore, Romania’s Consumer Price Index (CPI) in November recorded a 0.4% MoM increase and a 5.1% YoY rise.
Romanian CPI YoY growth rate (January 2019 – November 2024, %)
Source: Romanian National Bank, InterCapital Research
Looking deeper into the data, on an annual basis, services recorded the highest price increase of 7.6% compared to the same period last year, followed by food goods at +5.1%, and non-food goods at +4.2%. On a monthly basis, non-food goods prices rose by 0.6%, services increased by 0.3%, while food goods recorded a 0.2% rise.
Inflationary pressures on service prices are a widespread phenomenon, driven by increased personal consumption in the wake of rising living standards and a decreasing number of people living on the brink of poverty. Similar dynamics apply to retail trade. Given that Romania’s retail turnover increased by 10.6% YoY in October, it is unsurprising that food and non-food goods are also succumbing to inflationary pressures. However, a notable factor is the 4.8% YoY decrease in energy prices, which are considered in non-food goods calculation, attributed to price caps imposed by the government. These price caps will remain in place until March 2025, but it remains unclear how the government will transition to deregulating the market or what impact this shift will have on bills and inflation. Therefore, addressing other inflationary pressures is crucial to maintaining price stability, especially as inflation currently exceeds the Romanian National Bank’s target of 2.5%. Additionally, the super-election year in Romania, coupled with ongoing political turmoil, has triggered a public spending surge, as we discussed in detail in our last week’s blog. This has had an unfavorable impact on both the public deficit and price stability.
Moving on to the Harmonized Index of Consumer Prices (HICP), Romania’s annual inflation rate of 5.4% is the highest among Euro Area (EA) countries, ahead of Belgium at 5.0% and Croatia at 4.0%, while general inflation in the EA stands at 2.3% YoY.
HICP change for select EU countries (YoY, %, November 2024)
Source: Romanian National Institute of Statistics, Eurostat, InterCapital Research
While Romania’s use of its own national currency and its non-membership in the EA must be taken into account, it is important to note that Romania maintains a monetary system that tends to keep its exchange rate closely aligned with the euro. Additionally, given that approximately 75% of Romania’s international trade is with the EU, the HICP comparison with the EA remains relevant and highlights Romania’s ongoing struggle with price instability.
To conclude, political uncertainty and the public deficit problem exacerbate Romania’s price stability challenges, placing significant pressure on the new government to address the heightened cost of living. Additionally, energy price caps, set to expire in March 2025, create a short deadline for Romania to manage existing inflationary pressures, which continue giving a headache to the people of Romania.
