The recent sharp upwards move in headline CPI did not come as a surprise, given that minimum vodka prices, regulated rail tariffs, tobacco and gasoline excises were all hiked in early January. At the same time, the latest CPI report reflects that the underlying disinflationary trend remains in place. Hence, in February we expect headline CPI growth to approach its high for 2013 and then gradually moderate towards the CBR’s target range of 5-6% YoY. We see the annual CPI growth reaching 5.4% at the end of 2013 after touching 5.0% in September.
Slowing core inflation is likely to give the CBR more confidence to ease monetary policy. However, we do not expect policymakers to make an explicit cut in the key rates until headline CPI reaches its highs (just to avoid higher inflationary expectations, which might turn out to be self-fulfilling and so pose a risk to the macroeconomic picture in the long term). We expect to see the first easing steps as early as March-April.