Output in the economy at a standstill. IP in April was supported by oneoff factors; investment demand is contracting amid negative real growth of budget spending and weak commodity behaviour, while consumer demand is weakening, impacted by the growing savings ratio. The May data is set to be even worse, affected by the extended holidays.
CPI at its 2013 peak; June to bring disinflation. May's inflation reading, spurred by the earlier seasonal pick-up in vegetables, surprised to the upside. We expect a sharp decline in the headline CPI growth reading to start in June on the back of the favourable base effect in food prices and no signs of demand-side inflation pressures. By September, we expect the CPI to enter the 5.0-5.5% YoY range.
RUB weakness: global factors and current account deterioration. Recent RUB weakness was mainly driven by negative EM sentiment. In the coming months, the seasonal increase in the services deficit (tourism), dividend payments and low oil prices are set to push the current account into the red, adding pressure on RUB. We expect the dual currency basket to touch the RUB 37 level this summer.
Month ahead. The CBR's monetary policy meeting on 10 June will be the last one chaired by Sergei Ignatiev. Elvira Nabiullina officially takes office on 24 June. The St Petersburg economic forum will likely bring more visibility on the authorities' plans to stimulate economic activity. The most visible trend in June will likely be a sharp reversal in CPI YoY growth.