The recent sharp upwards CPI move did not surprise as this was expected due to regulated tariffs being hiked on 1 September. To recap, during the first few days of July, when the first tariff hikes occurred, consumer prices surged 0.54% (vs. 0.16% this time last year). By the end of the reported period, YTD CPI growth exceeded the respective level last year for the first time in 2012 (4.8% YTD in 2012 vs. 4.7% YTD in 2011). We believe that the fruit and vegetables deflation is to disappear in the coming weeks, while the effect of problems with this year’s harvest is to remain pronounced. Thus, we see food CPI growth continuing to accelerate and expect September’s CPI at 0.3-0.4% MoM and 6.3-6.4% YoY (vs. 0.1% MoM and 5.9% YoY in August).
Hence, as the CBR’s target for 2012 YoY growth in CPI has been exceeded, there is only one question: will the regulator shift its target or the policy stance? The answer could well become clear on 13 September. A ‘no change’ decision would be favourable, given that most parameters of economic activity, expect for CPI, guided for a slowdown. On the other hand, a hike in key rates would be beneficial for building the central bank’s credibility and successfully implementing inflation targeting.