Consumer price inflation in Romania increased to 16.8% y/y in November from 15.4% y/y in October, partly on base effects generated by the energy price cap introduced by the government a year earlier.

But while analysts expected inflation to reverse the small decrease seen in the month before (-0.56pp) in November, the magnitude of the move (+1.25pp) was at the upper end of the expectation band.

“Price pressures in the service sector are becoming more prominent and could nudge the central bank into another 25bp hike to 7.00% in January,” ING Romania said in a research note. ING expects inflation to peak in December.

“With core inflation already above 14.0%, there is mounting pressure for the National Bank of Romania (BNR) to deliver another hike at the January 2023 policy meeting,” the ING note reads.

"You will not find in our report the idea that we are putting an end to the monetary tightening cycle,” BNR governor Mugur Isarescu stated in November when the BNR left the door open for more rate hikes with a moderate 50bp increase.

However, he indirectly hinted the monetary policy would remain dovish since helping the government’s fiscal consolidation efforts would help it achieve price stability. The next monetary board meeting is scheduled for January 10.

The BNR forecast 16.3% y/y inflation at the end of the year, in the latest Inflation Report published in November.

While no significant deterioration in the inflation readings is expected for December, the prices will receive a new demand-side stimulus in the first months of 2023 as the paid wages will reflect the annual revisions that are likely to be quite significant this year in line with the inflation. The global decrease in commodity prices is a trend that needs to be re-assessed in light of the Covid-related developments in China and this is a factor that generates more uncertainty.

The BNR expects a sharp decline of headline inflation to under 11% y/y by mid-2023 largely under base effects – but the outlook certainly prices in expectations for a stable decline in the commodity prices.

The money market interest rates have eased recently and the government has lowered the yields paid on the ponds issued to banks and households along with inflation slowdown expectations.

Given the high uncertainty, the BNR did not make a decision at its latest monetary board meeting in November as regards further steps in its monetary policy, Isarescu said.