Romania's inflation story took an intriguing turn in November, revealing a complex dance of economic forces that could shape the country's financial future. But here's where it gets controversial: while some price pressures are easing, the overall picture is far from straightforward, leaving economists and consumers alike wondering what's next.
Delving into the details, we find that food inflation came in slightly lower than anticipated, while non-food inflation largely met expectations. However, services inflation exceeded forecasts, albeit with a crucial nuance: the pressures within this category seem to be narrowing, possibly indicating that weaker demand and easing wage growth are starting to influence the typically stubborn services sector. And this is the part most people miss: this shift could signal a broader cooling in consumer spending power, as wage increases (4.3% year-on-year in October, up from 4.1% in September) continue to lag behind inflation, dampening consumption.
The updated wage growth data provides a fresh perspective, showing modest improvements yet still falling short of inflation rates. This disparity remains a significant headwind for consumer spending, which is essential for economic momentum. Looking ahead, our forecasts have undergone a slight upward revision, with year-end 2025 inflation now projected at 9.8%, compared to the previous 9.6%. Consequently, our 2026 inflation path has also been adjusted upward, averaging 7.2% (previously 7.1%), and reaching 4.5% by year-end, surpassing the National Bank of Romania's 3.7% target.
Here’s the bold part: this outlook is fraught with dual risks. On one hand, renewed energy price hikes, particularly in gas bills from April 2026, could fuel higher inflation. On the other hand, subdued demand and moderating wage growth are expected to dominate the near-term landscape, mitigating the risk of secondary inflationary effects. Our commodities experts predict a softening in oil and natural gas prices next year, which could further alleviate inflationary pressures.
In contrast to the post-Covid inflation surge, this episode appears less severe, lacking the intense drivers like fiscal stimulus, commodity shocks, and robust wage growth. This scenario, in theory, should enable the National Bank of Romania to consider lowering interest rates before inflation significantly declines in 2026, shifting focus to the economic slowdown. We maintain our prediction of a 100 basis points rate cut in 2026, starting in May.
Now, let’s spark some debate: Is the National Bank of Romania's inflation projection of 3.7% for 2026 overly optimistic, or are we underestimating the potential for demand to rebound and wages to accelerate? What’s your take on the balance of risks—are we headed for a smoother inflation landing, or could unexpected shocks derail this outlook? Share your thoughts in the comments!
