Romania's headline inflation rate (chart) dropped to 4.6% y/y in September, from 5.1% y/y in August, driven by lower regulated energy prices, cheaper fuels and base effects in the segment of food prices, Romania’s statistics office announced.

The headline inflation reading thus came in slightly below the Bloomberg survey median of 4.7% y/y.

It is not the figure in itself that prompts concerns, but the expectations of further disinflation being put at risk by a sharp rise in real earnings, fiscal slippage and global security developments that could have an impact on energy prices.

The CORE2 inflation rate slowed by less than 0.2 percentage points (pp) in September compared to August, and remained relatively high at 5.6% y/y, according to our estimates.

The National Bank of Romania (BNR) already announced on October 4, when keeping the monetary policy rate at 6.5%. that its August inflation projection is already outdated. It is expected to update the inflation forecast in November. The previous projection envisaged 4.2% y/y inflation for September, significantly below the actual 4.6% y/y figure. The 4.0% y/y year-end forecast will thus be revised closer to 4.5%.

Looking at the structure of the headline inflation in September, the food prices accelerated to 4.7% y/y from 4.3% y/y in August and 1.7% y/y in July – after the effects of the price-capping regulations reached an end in July. Items such as maize or wheat flour, sugar or even sunflower oil were still less expensive than a year ago, thanks to low grain and oilseed prices. But the prices of food goods involving more labour or energy increased, by up to 13.8% y/y (vegetables and tinned vegetables).

Non-food prices slowed to 3.3% y/y in September from 4.25% y/y in August thanks to 6% cheaper energy (natural gas and electricity mainly) and 1.7% lower fuel prices.

Notably, the prices of services also slowed to 7.9% y/y in September from 8.6% y/y in August, partly reflecting base effects on the side of utilities.