Inflation pressures subsiding in May

The monthly increase in the price of food products (0.2%) was lower than in the previous months due to a positive seasonal pattern. Non-food products advanced by 0.2% m/m as the increases in the administered price of thermal energy (+0.9% m/m) and tobacco (+0.7% m/m) were counterbalanced by the fall in the prices of fuel and medicines (-0.1% m/m). Services advanced by 0.4% m/m following the depreciation of the RON which translated into higher tariffs for phone and air transport (+0.3% m/m).

Today's data is in line with our scenario regarding an annual inflation rate of 5.2% in December due to a strong base effect in 2H11. As domestic demand is still subdued and inflation outlook looks slightly better now, NBR is likely to keep key rate on hold at 6.25% throughout the rest of 2011 and start a tightening cycle only in 1Q12 ahead of the elections.

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