Bucharest, November 11, 2024 – RBJ – According to a press release, the National Bank of Romania (NBR) shows that the annual inflation rate fell to 4.62 percent in September, from 5.10 percent in August 2024. The decrease was mainly driven by lower fuel and energy prices, especially amid the drop in crude oil prices, which outweighed the impact of the new increases seen this month in food and tobacco product prices.
In 2024 Q3 as a whole, the annual inflation rate continued to decline, albeit more slowly than in the previous three months, as well as compared to forecasts. In September versus June, it fell by 0.32 percentage points (from 4.94 percent), as the sharp decreases in the dynamics of administered prices and fuel prices during this period – due to base effects and the unexpected drop in crude oil prices – were largely counterbalanced, in terms of impact, by the hike in food prices and to a low extent by the higher electricity prices, primarily amid this year’s severe drought.
At the same time, the annual adjusted CORE2 inflation rate posted a slower downtrend in Q3, also compared with the forecast, reaching 5.6 percent in September from 5.7 percent in June. The deceleration was further driven by the disinflationary base effects in non-food sub-components and by the decrease in import price dynamics. The influence of these factors was substantially mitigated over this period by the unfavourable statistical effect in the processed food segment and by the hike in some agri-food commodity prices, as well as by higher wage costs passed through, at least in part, into some consumer prices, inter alia amid still high short-term inflation expectations and a robust demand for goods.
The annual inflation rate calculated based on the Harmonised Index of Consumer Prices (HICP – inflation indicator for EU Member States) went down to 4.8 percent in September from 5.3 percent in June 2024. At the same time, the average annual CPI inflation rate fell to 6.1 percent in September from 7.2 percent in June 2024. In turn, the average annual HICP inflation rate shrank to 6.4 percent in September 2024 from 7.3 percent in June 2024.
The recently revised statistical data show that economic activity grew by 0.3 percent in 2024 Q2 after a 0.4 percent contraction in the previous three months (quarterly change), which implies a narrowing of excess aggregate demand during this period too.
Based on the new data, the annual GDP growth stepped up to 0.9 percent in 2024 Q2 from 0.5 percent in the previous quarter, mainly as a result of the surge in the annual dynamics of household consumption. However, the year-on-year increase in gross fixed capital formation slowed down significantly and net exports exerted a notably larger contractionary influence, given that the volume of imports of goods and services rose faster, while the volume of exports continued to decline in annual terms. Against this background, the dynamics of trade deficit and the current account deficit accelerated significantly in Q2, spurred in the latter case also by the considerable worsening of the secondary income balance, reflecting the developments in the inflows of EU funds to the current account.
The latest data and analyses point to somewhat more modest quarterly increases of the economy for 2024 H2 than previously envisaged, but on a gradual step-up, implying faster annual GDP growth in Q3, amid however divergent developments in aggregate demand components and in major sectors.
Thus, July through August 2024, the annual rate of change of retail sales was further high, down only slightly compared to the Q2 average, and that of motor vehicles and motorcycles sales remained unchanged. By contrast, industrial output reported a mild re-widening in its annual contraction and the volume of construction works saw a renewed annual decline after a relative recovery in 2024 Q2.
According to the updated forecast, the annual inflation rate will pick up slightly in the closing months of this year and will see a marked fluctuation in 2025 H1; it is expected to stay above the variation band of the target and at higher values than previously anticipated, amid the two-way base effects that will be manifest over the short time horizon, but also the severe drought of 2024 and the rise in some commodity prices, further affecting food and energy price dynamics.
Moreover, the annual inflation rate is then seen resuming its decline on a higher path than in the prior projection, dropping no sooner than the onset of 2026 below the upper bound of the variation band of the target and remaining in its vicinity until the end of the forecast horizon. The decrease will continue to be driven by disinflationary base effects, alongside the influences expected to come from the deceleration in import price growth, as well as from the downward adjustment of short-term inflation expectations.
