According to Rosstat, CPI growth slowed to 0.10% in 12-18 February, from 0.13% the week before (bringing the YTD print to 1.3%). Over the reported period, average daily price growth edged down to 0.014%, from 0.018% in the previous week (slightly below the 0.017% for 14-20 February 2012). The key driving forces behind CPI growth this week were almost the same (in order of importance) vodka (+0.7% WoW), potatoes (+0.8%), gasoline (+0.1%), and rye bread (+0.6% WoW). Meanwhile, fruit and vegetable prices decelerated slightly, adding 0.5% WoW vs. 0.6% during the previous week. It is worth noting that chicken prices kept deflating (-0.5% WoW).
The recent reading implies that headline CPI has stayed at 7.1% YoY as of 18 February. The weakening second round effect of the hikes in minimum vodka prices and gasoline excises, as well as slower growth in fruit and vegetable prices, was still dragging the average daily price growth down last week. We are confident in our estimate of 0.4-0.5% MoM and 7.1-7.2% YoY headline CPI growth in February (vs. 1.0% MoM and 7.1% YoY in January), which will likely mark the highest level for CPI in 2013. This will open a way to start the monetary policy easing cycle (we expect more focus on growth risks rather than inflation at the March meeting and a first cut in April). Meanwhile, the downward trend in core inflation could well persist, in our view, and therefore we see headline CPI slowing towards 5.3% YoY eop-FY13 (under a USD 110/bbl scenario).
Maxim Oreshkin, Daria Isakova
VTB Capital analyst
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