Russia: Inflation reaches over-two-year low in August
September 5, 2016
In August, consumer prices were unchanged over the previous month, which was below the 0.5% increase registered in July. According to the Statistical Institute, the flat reading reflected that lower prices for products, particularly food products, offset higher prices for non-food products as well as services.
Inflation began to decline rapidly toward the end of 2015 and continued at the beginning of this year. It stabilized at 7.3% between March and May before decelerating further in August, when it fell from 7.2% in July to 6.9%, representing the lowest reading since March 2014. That said, August’s inflation overshot the 6.1% the markets had expected. Inflation is on track to slow to below 6.0%, which would be within the Central Bank’s forecast of between 5.0% and 6.0% but still well above the Bank’s 4.0% target.
The Central Bank kept the monetary policy rate unchanged in August 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 August’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 fall in Russian inflation suggests the central bank will resume its easing cycle at the next MPC meeting.” Jackson expects the Bank to make 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 August.
Author: Ricardo Aceves, Senior Economist