Russia Inflation July 2016


Russia: Inflation reaches lowest level in over two years in July

August 4, 2016

Consumer prices rose 0.5% in July over the previous month, which came in above the 0.4% increase registered in June. According to the Statistical Institute, the monthly increase was the result of higher prices for services, particularly services related to housing and utilities.

Inflation began to decline rapidly toward the end of 2015 and stabilized at 7.3% between March and May of this year before increasing slightly to 7.5% in June. However, this uptick in inflation proved to be short-lived as inflation decelerated to 7.2% in July, which was below the 7.4% rise that the markets had expected and represented the lowest rate since March 2014. That said, inflation remains well above the Central Bank’s target of 4.0%.

The Central Bank kept the monetary policy rate unchanged in July at 10.50%—the second highest in the world in real terms—in order to cause inflation to fall in the coming months and meet its target by the end of next year, despite weak economic conditions. Some analysts suggest that July’s deceleration in inflation bodes well for an interest rate cut at the Central Bank’s next meeting scheduled for 16 September. William Jackson, Senior Emerging Markets Economist at Capital Economics, stated that, "the larger-than-expected fall in Russian inflation suggests the central bank will resume its easing cycle at the next MPC meeting.” Jackson expects inflation to slow further in August and sees the Bank making a 50-basis-point rate cut at the September meeting. Russia’s Central Bank has only cut the one-week repo rate once this year and left it unchanged at 10.5% at its last meeting in July.

The Central Bank expects that inflation will end this year at between 5.0% and 6.0%. 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 the panel of analysts surveyed by FocusEconomics is not in line with the Central Bank’s assessment. Our panelists see inflation ending 2016 at 6.7%, which is down 0.3 percentage points from last month’s forecast. For 2017, participants expect inflation to ease to 5.5%.

Author:, Economist

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Russia Inflation Chart

Russia Inflation July 2016 2

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

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