The pick-up in headline CPI in April was mainly driven by the acceleration in fruit and vegetables prices (which came earlier than in 2012) and slightly more expensive services. The main negative surprise was that VTBC core inflation edged up, but mainly owing to higher prices on foreign tourism, which we treat as a one-off linked to the weaker RUB in April. The same story occurred in February and, to recap, in March our core indicator normalised, proving the one-off nature of February’s increase.
The CPI report might check the CBR’s stance. We suggest that GDP growth is running below its potential, and advocate that monetary easing will hardly pose visible inflation risks, but would help the economy. However, April’s increase in headline CPI might raise the CBR’s concerns (that still focus on short-term headline CPI behaviour, not the medium-term core inflation trend) and force it to postpone bold monetary easing until the summer. However, we believe that this uptick is short-lived and the favourable base effect in food prices as well as further deflation in gasoline prices will likely ensure disinflation in the months to come. We are therefore reiterating our forecast of a 25bp cut in rates (a cut in policy rates of 25bp again, this time including short-term repo rates) at the CBR’s May monetary policy meeting.