As of December 2024, Romania recorded a CPI growth of 5.1% YoY, driven primarily by persistent increases in service prices, alongside inflationary pressures on food and non-food goods. These pressures were partly mitigated by price-cap regulations on energy, whose future remains uncertain. In terms of HICP, Romania continues to record elevated inflation at 5.5%, still significantly higher compared to Euro area countries.
Compared to last month, December marked another increase in prices on a monthly basis, with the CPI recording a 0.3% growth compared to November 2024. On an annual basis, the inflation rate in December amounted to 5.1%, remaining unchanged as in the previous month. However, the average rate of change over the last 12 months (January 2024 – December 2024) as compared to the previous 12 months of 2023 is 5.6%, representing a 0.1 p.p. decrease compared to November’s 12-month average. This slight decline was partly due to the exclusion of December 2023 from the calculation, during which CPI recorded an annual inflation of 6.6%.
Romanian CPI YoY growth rate (January 2019 – December 2024, %)
Source: Romanian National Bank, InterCapital Research
Looking deeper into the data, services recorded the highest annual increase of 7.1%, followed by food goods at +5.1%, and non-food goods at +4.4%. On a monthly basis, Non-food goods prices rose by 0.31%, while food goods and services recorded a 0.27% increase.
Inflationary pressures are expected to subside in 2025, falling below 4%, and further below 3.5% in 2026. However, these figures remain well above the National Bank of Romania’s annual inflation target of 2.5%. Additionally, these projections could be significantly affected by the government’s decision on the capping-compensation scheme, currently set to expire on 1st of April 2025. Romanian Energy Minister Sebastian Burduja announced that the ministry is considering extending the existing energy caps for an additional 3 to 6 months as the government explores various scenarios. So far, the Romanian government has made payments of approximately EUR 5.5bn within this compensation scheme.
When discussing inflation, it is also crucial to consider the unfavorable budget deficit, which reached approximately 8.6% of GDP last year, translating to some EUR 30bn. This was driven by higher electoral spending in the super-election year, increases in pensions and wages, and infrastructure investments. The large deficit adds further uncertainty to decisions on energy price caps and even raises questions about their feasibility. Romania aims to narrow the deficit to around 7% of GDP in 2025, a target described as “challenging” by the government, which will require a focus on streamlining public administration.
On the other hand, discontinuing the capping-compensation scheme could exacerbate inflationary pressures, further straining Romania’s already low living standards compared to the rest of the EU.
Moving on to the Harmonized Index of Consumer Prices (HICP), Romania’s annual inflation rate of 5.5% is the highest among Euro area (EA) comparisons, ahead of Croatia at 4.5%, while inflation in the EA stands at 2.4% YoY.
HICP change for select EU countries (YoY, %, December 2024)
Source: Romanian National Institute of Statistics, Eurostat, InterCapital Research
Although Romania uses its own national currency and is not a member of the EA, it maintains a monetary system that closely aligns its exchange rate with the euro. Additionally, with approximately 75% of Romania’s international trade conducted with the EU, the HICP comparison remains relevant and underscores Romania’s persistent struggle with price instability.
To conclude, Romanian inflation is unlikely to abate in the near future, as the new government faces the dual challenge of addressing the budget deficit while striving to maintain economic stability, whether or not energy pricing caps are extended. Adding to these economic challenges is the heightened uncertainty brought by the cancellation and postponement of the presidential elections to May 2025 and the ongoing geopolitical tensions in neighboring Ukraine.
