Food prices on the rise in January over December with 6.3 pct y-o-y drop

Food prices were 6.3 percent lower in January 2016 than the values registered in January 2015, but 0.5 percent above prices posted at the end of 2015, according to data released by the National Institute for Statistics (INS).

Overall, consumer prices decreased by 2.1 percent year on year and 0.8 percent on a monthly basis. The values were lower than predictions from Bloomberg and ING, standing at -1.4 percent on the month and -2.7 percent y-o-y.

“We have expected a pass-through of 65 percent for the 4ppt headline VAT cut to 20 percent after previous VAT cut for food items was about 85 percent transmitted into CPI. However, double digit retail sales and wage growth offered good reasons for low transmission rate coming in at about half our expectations,” Ciprian Dascalu, chief economist with the ING stated.

Within the last twelve months, consumer prices dropped by 08 percent, based on the Consumer Price Index (CPI).

While food prices dropped on the year, non-food products posted an increase of 0.1 percent over January 2015, while services saw a 1.2 percent increase.

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The situation is reversed as compared to December 2015, with food prices increasing by 0.5 percent, while non-food products and services registered decreases by 1.5 percent and 1.1 percent, respectively.

The largest increases in food prices were recorded for potatoes (3.9 percent), vegetables and tinned vegetables (3.07 percent), fresh fruit (2.3 percent), fruit and tinned fruit (1.9 percent) and edible oil (1.3 percent). On the other hand, the prices of plum brandy, spirits and other beverages decreased the most, by 2 percent, followed by wine with 1.8 percent.

Among non-foods, gas posted the largest drop in prices, with 3.23 percent and fuels, with 3.07 percent. In terms of services, water, sewerage and sanitation decreased by 7 percent.

The National Bank of Romania revised its inflation forecast last week, placing the prognosis for this year at 1.4 percent and projecting it at 3.4 percent in 2017. Inflation at the end of last year stood at -0.9 percent, up from -1.1 percent in November and the minimum of -1.87 percent registered in August. In the absence of the impact of reduced VAT rates (in June), inflation would have been around 2 percent in December, the central bank’s target range.

“We highlight that underlying inflation pressures are posing upside risks to our inflation profile. Romania’s inflation profile already looked much higher than peers. We think that January inflation figures increase the need for the central bank to act sooner rather than later and reduces the scope for prolonging the current liquidity driven accommodative monetary policy stance,” Dascalu of ING concluded.

Natalia Martian