PMIs for February indicate milder inflation pressures, supporting our nonconsensus view that there is going to be a sharp deceleration in headline CPI YoY growth this year. Meanwhile, the first hard data for February implies that the warmer weather this year and the 29 days in 2012 meant that industrial production contracted further last month. On the consumption front, early indicators flag that there might be softer wage growth and household spending.
Inflation pressures lower, labour market recovered slightly. The output inflation sub-indices of both the Manufacturing and the Services PMIs followed their downward paths in February: the first ticked down to a 12-month low of 49.8 (from 51.9 in January) while the latter was at 51.2 (52.2), levels last seen in 2009-10, respectively. At the same time, employment growth improved slightly, correcting from the recent significant worsening.
Drop in electricity and mining production signals a contraction in IP. In February, gas production declined 3.8% YoY (according to MinEnergo), returning to negative territory after two months of growth, while the annual change in electricity output slid to a three and a half year low, declining 8.3%. Oil and coal production also contracted last month. Two of the key reasons were that February’s weather was on average warmer than a year ago and 2012 was a leap year. According to our calculations, the combined effect of the contraction in electricity and mining production last month implies a YoY IP drop of at least 1.8%, which represents a downside risk to our forecast of a 1.7% YoY decline.