RO: May CPI accelerates to 5.5% y/y, above consensus
May CPI arrived at 5.45% y/y accelerating compared to the previous month when it stood at 4.85% y/y. This figure represents a slightly upward surprise for the Bloomberg consensus which stood at 5.3% and for our call. Forecast error on our side came predominantly due to fruit and vegetables prices which advanced more than anticipated at 6.4% m/m and 1.7% m/m respectively. Core inflation accelerated as well at 5.44% y/y in May from 5.28% y/y previously. This came in line with our assessment. Base effect also played an important role for May development.
Risks for the future inflation path are mostly to the upside considering the elimination of the price caps on electricity prices and markups for basic food items which will take place starting from July. Our 4.0% y/y call for end-2025 will most likely be revised to the upside if this does go through without any compensating measures. More clarity on this will likely get next week.
The current NBR forecast considers a 15% electricity price increase starting from July. Based on current market prices advertised by the main electricity providers, this figure could be significantly higher. Also, given that the current forecast had a cutoff date end of April, the NBR most likely did not consider a more frontloaded FX depreciation. We believe that an upward revision of the 4.6% y/y seen by the NBR at the end of this year could be possible at the next forecasting exercise which will pe presented in August. Core inflation will likely be the focus of NBR decision making moving forward. May figure could be slightly above NBRs expectations. We believe that August rate cut is debatable and will only take place if market conditions and inflation assessment allow it. The likelihood of a rate cut decision in October and November is higher but still data dependent. Fiscal a remains a key factor for the NBR as well as decisions made by peer central banks and ECB.
Adjusted CORE2 inflation (headline inflation minus administered prices, volatile prices, tobacco and alcohol), which is closely watched by the NBR, accelerated in May at 5.44% y/y. Core-food items inflation accelerated to 5.1% y/y in May from 4.9% previously, core-non-food was down at 4.8% y/y from 5.2% and core-services accelerated to 6.5% y/y in May from 6.1% y/y. We expect CORE2 inflation to end 2025 at 5.0% y/y.
In monthly terms, consumer prices edged up by 0.46% in May. Food prices increased by 0.89% m/m mainly due to higher fruit and vegetable prices. Prices of non-food items inched up by 0.08% m/m with a mixed evolution within the category. Services prices rose by 0.62% m/m with a more broad-based growth profile.