RO: June CPI accelerates to 5.7% y/y, above market consensus
June CPI accelerated to 5.66% y/y from 5.45% y/y in May. This is very close to our forecast of 5.64% y/y and exceeded the Bloomberg survey median of 5.5% y/y. Core inflation also accelerated to 5.65% y/y in June from 5.44% previously, above our expectations. The near-term inflation outlook is uncertain due to the upcoming elimination of electricity price caps in July and increases in VAT and excise duties, both scheduled for August.
Consequently, we have revised our year-end CPI forecast upward to 7.5% y/y, from a previous estimate of 5.6% y/y. Our revised forecast carries upside risks, primarily stemming from our assumption of a 30% electricity price increase next month, which market data suggests may be higher. Furthermore, the assumed 60% pass-through of the VAT hike into consumer prices presents another potential upside risk. Given these inflation expectations, we anticipate that the NBR will keep the key rate unchanged for the rest of the year. We see the first NBR rate cut in February 2026 when the central bank presents the updated inflation outlook, provided that inflation expectations are contained and no additional supply shocks. The central bank recently announced an upward revision of its own inflation forecast, details of which will be presented in August.
Adjusted CORE2 inflation (headline inflation minus administered prices, volatile prices, tobacco and alcohol), which is closely watched by the NBR, accelerated in June at 5.65% y/y from 5.44% in the previous month. Core-food items inflation accelerated to 5.5% y/y in June from 5.1% previously, core-non-food was also up at 5.2% y/y from 4.8% and core-services stagnated to 6.5% y/y in June. We forecast CORE2 inflation to end 2025 at 6.5% y/y.
In monthly terms, consumer prices edged up by 0.45% in June. Food prices increased by 0.53% m/m mainly due to higher fruit prices. Prices of non-food items inched up by 0.42% m/m with a mixed evolution within the category as fuel and tobacco prices went up this month while energy prices inched down. Services prices rose by 0.37% m/m with a more broad-based growth profile.
The NBR is likely comfortable with the new range for EUR/RON, with the governor saying the RON fairly valued in REER terms at the May press conference. We perceive that 5.05-5.10 is the new central bank comfort range for the EUR/RON, as further RON weakness could add undesired fuel to the inflationary fire. FX vulnerability remains high due to large current account deficit and high-risk premia. Hence, higher cost of carry might be required to fence the RON.