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CPI surprised with a drop to 6.7%


According to Rosstat, the CPI increased 0.52% in 1–29 October, adding a mere 0.02% last week. The average daily price growth decreased to 0.002% during the reported period (23–29 October) from 0.025% in the previous week, and was much lower than the 0.027% for 25–31 October last year.

The detailed breakdown shows that the growth in the regular key contributors weakened last week: flour (+0.8% WoW), sunflower oil (+0.8% WoW), eggs (+0.4% WoW) and millet (+0.6% WoW). At the same time, although the price of hot water supply added 0.3% WoW, some other services even deflated last week: in particular, there were WoW drops in cold water supply (0.3%) and heating (0.1%).

Meanwhile, both the growth in gasoline prices and the deflation in fruit and vegetables, weakened further to +0.2% WoW and -0.8% WoW (from +0.3% WoW and -1.1% WoW, respectively), during the previous week.

Given that the recent slowdown in CPI growth is hardly sustainable, we might see full-month CPI growth at 0.6–0.7% MoM and 6.7–6.8% YoY. The surprising deceleration in CPI growth last week can be explained by the slower increase in the prices of wheat-related goods, remaining deflation in fruit and vegetables, and an unexpected deflation in bills for heating and other public services. We consider the latter to be a one-off and retain our full-year CPI forecast of 7.3% YoY as fruit and vegetables deflation is set to disappear soon, with the labour market still tight and
wage growth strong.

Slowing CPI in late-October, coupled with the recent decision to implement macroprudential measures to contain retail lending growth (one of the key risks for sustainable growth and stable inflation), might prompt the CBR to narrow just the key interest rate band with a 25bp increase in only the auction-based repo and deposit rates in November. The full-month CPI report for October on 6–7 November is likely to shed more light on the CPI’s performance and be of greater importance for the CBR’s monetary policy decision.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

CPI, inflation

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