Yesterday, Rosstat released its weekly CPI report for 21-27 May. The average daily growth in consumer prices remained unchanged at 0.024% (vs. 0.025% during the respective week in 2012). The growth in vegetable prices, despite deceleration, remains the key CPI driver, in particular potatoes (3.9% WoW vs. 5.4% WoW a week ago) and cabbage (3.8% WoW vs. 5.4% WoW). Gasoline prices stayed unchanged WoW last week, while the growth in vodka prices added a mere 0.2% WoW (similar to the previous reported period).
The inflation report suggests that annual CPI growth remained at 7.4%, while adding 0.57% over 1-27 May (vs. 0.42% in 1-27 May 2012). We note that this was almost the first week this year when the growth in fruit and vegetables prices was lower than during the respective period last year (1.9% WoW vs. 2.8% WoW). In our view, vegetables prices are to increase more and more modestly in the weeks to come. That, coupled with the abnormal intensification in the growth of vegetable prices last year (due to the poor harvest) will likely lead to strong headline disinflation. To recap, by the end of the year we forecast 5.4% YoY. However, for the full month we retain our growth forecast of 0.5% MoM and 7.2% YoY as a resilient RUB and a drastic decline in consumer demand on the car market seem to bring deflation in items that are not included in the weekly sample. Meanwhile, core inflation is set to remain subdued in May amid the ongoing sluggishness in economic growth.
Maxim Oreshkin, Daria Isakova
VTB Capital analyst
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