Russia Inflation May 2024

Russia: Inflation accelerated to 15-month high in May

Inflation surged to 8.3% in May (April: 7.8%), marking the highest rate since February 2023. Looking at the details of the release, the increase was broad-based, with faster price pressures noted for both goods and services. As a result, overall price growth was more than double the Central Bank’s 4.0% target in May. Moreover, core inflation outpaced both April’s reading and headline inflation, coming in at 8.6% (April: 8.3%).

Average annual inflation rose to 6.6% in May (April: 6.1%). Finally, consumer prices increased 0.74% in May over the previous month, accelerating from April’s 0.50% rise. May’s uptick marked the highest reading since January.

Our Consensus is for inflation to decrease from current levels on average by end-2024 on the back of still-tight monetary policy. That said, price pressures will significantly exceed the Central Bank’s medium-term forecast of 6.2–6.4% this year and remain above the Bank’s 4.0% target until 2028. Meanwhile, persistently high inflation will likely lead the Central Bank to maintain a restrictive policy stance and could prompt an additional hike when it next convenes on 26 July; some of our panelists have recently penciled in further tightening by year-end.

Clemens Grafe and Johan Allen, analysts at Goldman Sachs, commented:

“In our view, inflationary pressure continues to be fueled by a large output gap stemming from last year’s loose fiscal and monetary policy. Based on statements from [Central Bank of Russia (CBR)] officials, we think the CBR broadly shares our view regarding ongoing inflationary pressures and it notably upgraded its expectations for both inflation and growth in its latest medium-term forecasts in April. Nevertheless, our inflation forecasts remain more hawkish than both the CBR and consensus, as we think domestic demand shows no signs of cooling, indicating that despite the CBR’s relatively tight stance, the output gap has not significantly narrowed.”

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