RO: End-2024 CPI at 5.1% y/y

CPI ends 2024 at 5.14% y/y below market consensus of 5.2% y/y but in line with our expectations. The annual figure is slightly higher vs 5.11% y/y recorded in Nov-24. The average CPI for 2024 stands at 5.6% y/y vs 10.5% y/y in 2023. Core inflation stuck at 5.6% y/y for the third consecutive month showing persistent underlying inflationary pressure and should be the main point of concern for the NBR moving forward. We expect the disinflation process to continue in 2025 and we see end-year inflation at 3.7% y/y in a scenario with no additional fiscal changes that could affect inflation.

December inflation comes as a negative surprise for the NBR which had at 4.9% y/y forecast. Core inflation also ends the year 0.5pp above the 5.1% y/y seen by the NBR. With this in mid, we might see an upward revision of the inflation outlook from the central bank at the February forecast round. CORE inflation should currently be the main point of concern but looking at the base effect January should break the stagnation streak and we expect core inflation to start moving down once again in 2025 albeit at a slower pace vs 2024 and we see it ending the year at 4.0% y/y. We see NBR on hold till Q3 2025 and we expect 75bp of rate cuts this year with a terminal key rate expected at 5.75% from 6.50% currently. Considering that the presidential elections are scheduled for 4/18 May, this should add an extra degree of cautiousness in NBRs decision making in the first half of the year.

The 2025 inflation outlook remains somewhat uncertain as fiscal measures taken by the government to address the large fiscal deficit are still in the making and could also influence the CPI. So far, we only know about some excise duty hikes which already took place starting from January 1st and which should push the monthly rate up by around 0.3-0.4pp. The cap on markups for basic food items is set to expire at the end of June, with no confirmation yet on whether it will be extended. This could lead to a slight uptick in inflation, although the overall impact is likely to be moderate. The future of energy price caps, currently scheduled to expire in April, also remains uncertain. While discussions about extending them are ongoing, no official decision has been made. Based on current trends, we project headline inflation to end 2025 at 3.7% y/y.

Adjusted CORE2 inflation (headline inflation minus administered prices, volatile prices, tobacco and alcohol), which is closely watched by the NBR, remained flat in Dec-24 at 5.6% y/y for the third consecutive month and in line with our projection. Diving deeper into CORE2 inflation components, we notice that core food inflation continued to drift higher for the fifth month in a row in Dec-24 to 4.1% y/y, from 3.8% previously. The underlying inflationary pressures from core services and core non-food remained persistent, and the annual figures came at 6.8% y/y and 6.5% y/y, respectively. We expect CORE2 inflation to end 2025 at 4.0% 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 0.29% in December 2024. Food prices increased by 0.27% m/m mainly due to higher meat, dairy products, and egg prices. Prices of non-food items inched up by 0.31% m/m mainly due to higher fuel prices. Services prices rose by 0.27% m/m with a more broad-based profile.