Romanian Inflation Is No Cause For Celebration Yet

(MENAFN- ING) August CPI: a welcome surprise, but with caveats

Food and non-food inflation came in softer than expected, at 2.6% and 6.3%, respectively, in August. Seasonal declines in vegetables and fresh fruit were particularly pronounced, with prices falling by 7.0% and 5.5% month-on-month, respectively. Natural gas prices also declined by more than 4.0%.

The picture was less benign elsewhere. Fuel prices rose by more than 6.0% on the month, highlighting the continued sensitivity of headline inflation to developments in global energy markets. Meanwhile, services inflation remained broadly unchanged, suggesting that underlying price pressures have yet to ease meaningfully.

Wages: showing signs of life but momentum remains modest

Today's data also showed the latest wage developments. As of July, the average net wage growth picked up to 5.5%, jumping from June's 3.5% and taking the year-to-date average to 3.9%. The July pick-up led to an increase in the average net wage to 5820 lei, up from 5734 lei, likely an indirect impact of the rise in minimum wage during the month.

Nevertheless, 2026 will shape up to be the year with the weakest wage growth since 2010, as both public sector freezes and private sector weakness have taken their toll on demand and the labour market. While these headwinds may be approaching their peak, a convincing recovery has yet to emerge.

Outlook: running out of synonyms for“uncertainty”

Taken in isolation, today's print would imply a somewhat lower inflation path ahead. However, part of this improvement is likely to be offset by the recent rebound in oil prices, limiting the scope for further disinflation in the very near term.

Developments in the Middle East remain the key risk factor. The resilience of oil prices in the first half of September suggests that markets are increasingly reassessing both the duration and potential impact of the conflict. The outlook remains highly uncertain.

For now, we retain our 6.5% year-end inflation forecast. In a more favourable scenario, characterised by a rapid easing of geopolitical tensions and lower energy prices, inflation could finish the year closer to 6.0%, bringing the National Bank of Romania's 6.1% projection within reach.

More fundamentally, domestic demand imbalances are likely to unwind only gradually. As a result, the current disinflation process is unlikely to accelerate materially in the near term. Put differently, stagflationary pressures appear to be easing, but their full dissipation is more likely to be a story for 2027.

Much of the outlook will ultimately depend on developments in global energy markets, which currently dictate both inflation dynamics and, to some extent, the pace of domestic demand recovery. On the policy side, we continue to expect the National Bank of Romania's first rate cut in January 2027. Recent communication from the central bank has suggested that discussions about policy easing would become relevant once headline inflation falls below the policy rate, a threshold that has now technically been crossed.

In that respect, our January 2027 call for the first rate cut still looks reasonable. That said, domestic fundamentals are only part of the story. If yields in core markets continue to drift higher, the NBR may find it difficult to ease policy against an unfavourable global backdrop. In other words, while the case for rate cuts is gradually strengthening at home, global financial conditions could still dictate the timing and pace of the easing cycle.

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