Reignited inflationary pressures

Non food items went up by 0.5% m/m due to a hike in the administered price of thermal energy and also due to higher fuel price. The monthly depreciation of the RON translated immediately into higher prices of phone services (+1% m/m), air transport and rents. Overall, services increased by 0.8% m/m.

After today’s data, we have revised upwards our inflation forecast for end-2011 to 3.6% y/y, while leaving unchanged the estimation for 2012 at 4.1% y/y. As inflation could fall to around 2.5% in 2Q12, we expect two more cuts in the key rate to 5.5% by next March and then a flat key rate by the end of 2012. On the occasion of a financial seminar held yesterday in Bucharest, the NBR governor said the central bank started to pay less attention to the FX rate when deciding the monetary policy stance and suggested that inflation is the key driver of their decisions. He also added that a move of the EURRON FX rate of 1-3% is not significant.