Romanian Inflation Holds at 9.8% as Austerity Weighs on Prices

Romanian inflation remained stagnant at 9.8% in November, unchanged from the prior month, as the effects of tax hikes and austerity measures aimed at reducing the country's budget deficit continued to weigh on consumer prices. The National Institute of Statistics reported that prices rose 0.4% from the previous month, underscoring the ongoing pressure on households. The figure was above the median estimate of 9.6% in a Bloomberg survey, highlighting the persistent inflationary impact.

The Romanian government has implemented a series of tax increases and removed energy price caps to narrow its budget deficit, which currently exceeds 9% of GDP—the highest in the European Union. These measures have pushed inflation to its highest level in two years and have constrained the central bank's ability to respond aggressively.

The National Bank of Romania has held its benchmark interest rate steady at 6.5% since mid-2024, balancing the need to support the economy amid a deep political crisis according to reports.

Economists believe the current inflationary shock is transitory, with price growth expected to ease in the second half of 2026. Vlad Ionita of Erste Group Bank AG noted that inflation is likely to see a marginal decline by year-end, and core inflation has also plateaued. With such conditions, the likelihood of a rate cut in the near term is low, with the first potential reduction not expected before the May meeting.

How Markets Reacted

In a separate development, Critical Metals Corp. (CRML) announced a 50-50 joint venture with Romania's state-owned Fabrica de Prelucrare a Concentratelor de Uraniu to build a rare earth processing facility. The deal, which includes long-term offtake rights for 50% of Critical Metals' Tanbreez concentrate, marks a significant step in securing a Western supply chain for critical minerals. The company's stock surged 5.9% following the announcement, driven by optimism over the strategic partnership and the project's potential to reduce reliance on Chinese processing capabilities.

The joint venture is expected to produce aerospace and military-grade magnets, positioning Romania as a key player in the global rare earth supply chain. Critical Metals will not issue debt or equity for the project and will retain a 50% interest on a carried basis, allowing the company to focus on its strategic objectives without additional financial burden according to analysts.

What Analysts Are Watching

Market analysts are closely monitoring the political and economic developments in Romania as the government continues to push through austerity measures. The recent victory of Prime Minister Ilie Bolojan's Liberal party candidate in the Bucharest mayoral race has strengthened his position within the ruling coalition. Ciprian Ciucu's win with 36% of the vote is seen as a positive outcome for the premier, who is under pressure to implement cost-cutting reforms to address the country's budget deficit.

The mayoral election also highlighted the growing influence of far-right parties in Romania. Anca Alexandrescu, backed by the Alliance for the Union of Romanians (AUR), came in second with 22% of the vote, signaling the continued appeal of anti-establishment sentiment. With political tensions high and austerity measures facing resistance, the ruling coalition must navigate a delicate balance between fiscal discipline and social stability.

Risks to the Outlook

The prolonged inflationary environment in Romania poses risks to both the government and the central bank. With inflation entrenched at almost 10%, the National Bank of Romania faces the challenge of maintaining price stability without exacerbating the economic slowdown. The government's tax hikes and austerity measures have already sparked social unrest and political friction, with coalition partners and opposition groups criticizing the approach.

Moreover, the recent geopolitical tensions in the region and the broader European context add uncertainty. Romania's role in energy diversification efforts and its integration into European supply chains, such as the rare earths processing joint venture with Critical Metals, are seen as key to its long-term economic resilience. However, the success of these initiatives depends on continued political stability and effective implementation of reform measures.