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Inflation again surprised to the downside


According to Rosstat, in November the CPI growth stayed at 6.5% YoY, the same as in the previous month. In MoM terms, it added mere 0.3%. The non-food component eased to 5.2% YoY in November, from 5.3% YoY in October. The annual growth in the other main parts of the consumer prices index remained unchanged across the board: food inflation was flat at 7.3% YoY (for the third consecutive month), services’ prices grew 5.8% YoY and Rosstat’s core inflation was at 7.2% YoY.

In separate news, according to the weekly CPI report, the CPI increased 0.04% in the first three days of December. Average daily price growth ticked up to 0.014% last week, from 0.012% in the previous week, again below the 0.018% in 1-5 December 2011.

The breakdown shows that last week’s growth came mainly from WoW price rises in eggs (2.1% WoW), milk (0.3%) (potatoes (0.7%), and heating (0.2%). Meanwhile, last week, fruit and vegetable prices kept accelerating, recording inflation of 0.5% (vs. 0.3% a week ago). 

The numbers might pose a downside risk to our CPI FY12 growth estimate of 6.8% YoY. We highlight that it was slowing non-food prices that helped to contain inflation while fruit and vegetables prices have been accelerating since mid-November. Last month, core inflation kept moderating, reflecting slowing demandside pressures. Hence, in an environment of milder inflation pressures, it will be harder for the CBR to increase key repo rates during its next meeting. We are now confident in our call for the end of the tightening cycle. Besides, we expect core inflation to continue falling due to slowing economic growth in the coming months; that is likely to create space for the CBR to ease monetary policy in the latter part of 1Q13 or early 2Q13.
Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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