RO: November CPI came in line with our expectations at 5.1% y/y

November CPI came in line with our expectations at 5.1% y/y, accelerating from 4.7% in the prior month, but 0.1pp above Bloomberg consensus. Non-food items had the largest inflationary contribution to the monthly CPI growth rate, accounting for 0.3pp out of the 0.41% m/m increase mainly due to a 3.4% monthly rise in electricity prices. Food prices continued to advance in monthly terms but with a more moderate pace. Surprisingly, vegetable prices were down 1.6% m/m in November. Services inflation remained sticky. Core inflation was flat at 5.6% y/y in November, also in line with our expectations. We expect inflation to end the year at 5.2% y/y.

We see the next NBR rate cut in the second quarter of 2025, though the interest rate outlook is a function of the structure, timing, and size of the widely expected fiscal consolidation package, which should be presented by the new government which is currently in the making. The rescheduled presidential elections are likely to take place at the end of the first quarter of 2025 or the beginning of the second quarter. This could delay the resuming of the rate cuts by NBR into the third quarter.

We anticipate spill overs from the bad agricultural year to continue to be felt and food prices are likely to be the main inflationary risk into the year-end. Looking at a momentum measure we can clearly see that the negative momentum that persisted throughout 2024 for the food category has shifted in recent months and is currently strongly positive. This suggests that food prices are currently trending upward. The CPI outlook for 2025 is clouded by the likely fiscal consolidation measures that should be adopted by the government in order the address the large fiscal deficit. For example, a hike in indirect taxes is pro-inflationary, while a fiscal adjustment via direct taxes helps bringing inflation lower. We hold to our CPI forecast of +3.7% by end-2025 based on the current fiscal framework.

Adjusted CORE2 inflation (headline inflation minus administered prices, volatile prices, tobacco and alcohol), which is closely watched by the NBR, remained flat in November at 5.6% y/y, in line with our projection. Diving deeper into CORE2 inflation components, we notice that core food inflation continued to drift higher for the fourth month in a row in November to 3.8% y/y, from 3.4% in October. The underlying inflationary pressures from core services and core non-food remained persistent, and the annual figures remained roughly unchanged at 7.0% y/y and 7.1% y/y, respectively. We expect CORE2 inflation to end the year at 5.6% y/y. We stick to our view that core inflation should hover above the headline inflation for most of the forecast period.

In monthly terms, consumer prices edged up by 0.41% in November. Food prices increased by 0.19% m/m mainly due to higher fruit and meat prices. Prices of non-food items inched up by 0.61% m/m mainly due to higher energy prices. Services prices rose by 0.29% m/m with a more broad-based profile.