August's reading reflects that, along with a decline in export demand, internal demand has also weakened. Besides, the employment component is still near the 50 mark, but improving. At the same time, growth in costs accelerated significantly in August, on the back of tariff hikes and rising gasoline prices. The press release mentions that cost pressures were strongest on the producers of consumer goods, which is not surprising in the light of the still strong wage expansion given that these productions are labour-intensive.
The reading did not reveal obvious arguments for the CBR’s decision. On the one hand, the headline index moderated, pointing to weaker activity in the manufacturing industries in August. On the other, this explicitly points to ongoing inflation pressure. In this regard, we are, for the moment, maintaining our view on the CBR’s next policy move, but note the upcoming releases of core inflation for August (5 September) and statistics on lending activity (by the end of this week)
Hence, the report suggests a further slowdown in manufacturing industries, with companies’ margins under pressure from rising costs, thereby it bodes well for our forecast of weaker local demand during the second half of this year on the back of cooling lending and negative momentum in fiscal expenditures.