BNR: Annual inflation rate picks up driven by global supply-side shocks and Ukraine war

The flare-up in inflation in the first months of the second quarter was further driven by global supply-side shocks, amplified by the war in Ukraine and the sanctions imposed, which triggered and fuelled a strong rise in inflation to unprecedented levels worldwide, the National Bank of Romania (BNR) argues."The annual inflation rate has picked up more than expected in the first two months of the second quarter of 2022, jumping to 13.76 percent in April from 10.15 percent in March, and then rising moderately in May to 14.49 percent. The bulk of the increase was again generated by the exogenous CPI components, especially by the hefty and larger-than-anticipated hikes in electricity and natural gas prices - given the changes made to the price capping schemes in April - and, to a small extent, by the pick-up in fuel prices, following the advance in crude oil prices amid the war in Ukraine and the related sanctions," the central bank said in a statement after the monetary policy meeting of the Board of Directors.The annual adjusted CORE2 inflation rate took to a steeper trend in the first month of Q2, also compared to forecasts, however this upward trend subsided subsequently, reaching 9.1 percent in May from 7.1 percent in March, mainly under the influence of new significant increases in processed food prices.Specifically, the evolution of this component continues to reflect the effects of the surges in commodity prices, mainly agri-food prices, and of elevated energy and transport costs, alongside the influences of production chain bottlenecks, compounded by high short-term inflation expectations, the resilience of demand in certain segments, as well as by the significant share of food items and imported goods in the CPI basket."Therefore, the step-up in the annual inflation rate in the first months of Q2 was further driven by global supply-side shocks, amplified by the war in Ukraine and the sanctions imposed, which triggered and fuelled the strong rise in inflation worldwide, to unprecedented levels over the last decades in developed economies, including in many European countries," the BNR said.The average annual CPI inflation rate and the average annual inflation rate calculated on the basis of the Harmonised Index of Consumer Prices (HICP - inflation indicator for EU member states) went up to 8.3 percent and 7.1 percent respectively in May, from 6.5 percent and 5.6 percent respectively in March 2022.According to data published by the National Institute of Statistics, the annual inflation rate rose to 14.5 percent in May 2022 from 13.76 percent in April, whereas in its May Inflation Report, the central bank was anticipating the annual CPI inflation rate to peak at 14.2 percent this June.The BNR increased its end-year inflation forecast to 12.5 percent and estimates an inflation of 6.7 percent by the end of 2023.