According to Rosstat, CPI growth for 1–6 August reached 0.07%. Average daily price growth accelerated to 0.012%, from 0.005% in the previous week (the same week of last year showed stable prices). The key movers in CPI this week were: regulated tariffs (+0.0–0.3% WoW), transport costs (+0.0–1.3% WoW) and food prices (fruit and vegetables prices -3.0%, sugar +0.8%, flour +1.1%, bread +0.6% and chicken +0.8% WoW).
There have been a number of main trends in CPI dynamics of late: i) the second round effects from hiking regulated tariffs (including more expensive tram and trolleybus tickets); ii) seasonal deflation in fruits & vegetables (-3.0% WoW), which is slower than year ago when prices fell from abnormally high levels (-4.4% WoW for the same week of last year); iii) the increase in food prices for those items affected by global and local problems with the harvest (including wheat, bread, sugar and poultry). At the same time, the recent underlying inflation trend is likely to continue accelerating on weak RUB/strong wage and lending growth/strong fiscal spending in 1H12. However, weekly reports do not give a clear picture of core inflation (the detailed breakdown is only shown in the monthly reports).
Weekly inflation will likely slow down in the coming weeks, and for August as a whole we expect 0.2% growth, which will likely push the YoY figure to 6.0–6.1%. This is above the upper boundary of the CBR’s end of year forecast (5.0–6.0%). We keep our expectations for monetary policy unchanged. To recap, we expect no change in base interest rates, but this week’s statement is highly likely to be more hawkish. Our base case implies a 50bp hike in key rates this year (25bp in each of September and October).