According to Rosstat, CPI growth reached 1.0% on 1-16 July. During the reported period (10-16 July) prices rose 0.2%, with average daily price growth softening to 0.025% from 0.038% in the previous week (but above the 0.005% for 12-18 July last year). The key driving forces behind CPI growth this week are still the same: regulated tariffs and fruit and vegetables prices (+1.3% WoW).
We remain happy with our 1.2-1.3% MoM and 5.5-5.7% YoY forecasts for July. We also expect CPI to continue growing in the months to come due to the elimination of the high-base effect in food prices, pass-through effect from a weaker RUB, high wage growth, and budget expenditures growth in 1H12. In August, headline CPI might exceed the upper bound of the CBR's forecast for 2012 headline CPI (currently at 5.0-6.0%). This might trigger rate hikes in September, especially as the CBR’s stance is much more flexible now after dropping the 'for several months' phrase from its statement last month. It is worth noting that food prices in the months to come will also likely be impacted by a poorer-than-expected harvest in Russia and globally this year (with wheat prices approaching USD 900), adding upward risks to our year-end CPI forecast (currently 7.0%).