Russia Inflation May 2016


Inflation stays unchanged at 7.3% for third consecutive month

Consumer prices increased 0.4% in May over the previous month, which was on par with both the reading registered in April and market expectations. According to the statistical office, the monthly reading shows a slight increase in food prices, while prices for services and for fuels moderated over the previous month.

In May, inflation stabilized at April’s 7.3% and remained at the lowest level since May 2014. Inflation began to decline in free fall in August 2015 from a peak of 15.8% and the rapid fall in inflation was mainly the result of a favorable base effect, which appears to have faded in May. Moreover, the recent stabilization of the Russian ruble has helped to diminish inflationary pressures. That said, inflation remains well above the Central Bank’s target of 4.0%.

According to some analysts, the current level of inflation bodes well for an interest-rate cut in the coming 10 June monetary policy meeting. Ivan Tchakarov and Ekaterina Vlasova, Senior Economists at Citigroup, stated that, “inflation continues to moderate on the back of declining inflation expectations and broader economic weakness.” The analysts also commented that, “positive inflation developments and, in our view, very high real rates argue strongly for initiating a rate-cutting cycle.” Russia’s Central Bank has left the one-week repo rate unchanged at 11.00% since September last year.

The Central Bank recently stated that inflation remains at risk of stalling between 6.0% and 7.0% in the remainder of the year. However, Russian monetary authorities are confident that inflation will be on track to reach the 4.0% target at the end of 2017. The Consensus view of a panel of analysts surveyed by FocusEconomics is not in line with the Central Bank’s assessment. Panelists see inflation ending 2016 at 7.4%, which is unchanged from last month’s forecast. For 2017, participants expect inflation to ease to 6.0%.

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Russia Inflation Chart

Russia Inflation May 2016 0

Note: Year-on-year and month-on-month variation of consumer price index in %.
Source: Federal State Statistics Service (Rosstat).

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