RO: We revise up year-end inflation forecast at 4.0% y/y
April CPI came in at 4.9% y/y stagnating compared to the previous month. This development is above our call of 4.8% y/y and in line with market consensus of 4.9% y/y. The forecast error on our side came mainly from non-core items, specifically administered prices and volatile food items. The expected drop in natural gas prices was partly offset by a sharp rise in heating prices and higher electricity prices. Fruit prices rose faster than we anticipated. Core inflation also stagnated in line with our expectations at 5.3% y/y in April vs March.
Due to the negative surprise in April and in order to account for a more frontloaded FX depreciation we revise up our year-end inflation forecast at 4.0% y/y from 3.7% y/y. This is in a no tax change scenario. We also revise up end-2026 inflation forecast at 3.4% vs 3.0% previously estimated. Core inflation is expected above headline inflation throughout the period.
The NBR already signaled a higher inflation path vs the current forecast at the last meeting which took place in April. The central bank was expecting 3.8% y/y at the end of this year. The updated forecast will be published most likely early next week along with the quarterly Inflation Report. On Friday, the NBR will hold a rate setting meeting. The broad consensus is for a hold decision. We continue to expect the first rate cut in August if conditions allow it.
Adjusted CORE2 inflation (headline inflation minus administered prices, volatile prices, tobacco and alcohol), which is closely watched by the NBR, stagnated in April at 5.3% y/y. Core-food items inflation accelerated to 4.9% y/y in April from 4.5% previously, core-non-food was slightly down at 5.2% y/y from 5.3% and core-services decelerated to 6.1% y/y in April from 6.3% y/y. We expect CORE2 inflation to end 2025 at 5.0% y/y and remaining above headline inflation.
In monthly terms, consumer prices edged up by 0.07% in April. Food prices increased by 0.83% m/m mainly due to higher fruit and meat prices. Prices of non-food items inched down by -0.65% m/m mainly on lower energy and fuel prices. Services prices rose by 0.48% m/m with a more broad-based profile.