June’s economic data (on both the supply and demand sides) shows a correction from May’s lows, but the expected recovery would not be as strong as the less negative calendar factor would imply (e.g. Lada sales continued to drop at a double-digit annual growth pace). The PMIs for last month indicate just a slight upturn in the manufacturing sectors following the weak spring period and significant worsening in services output.
Gas, oil and electricity data show IP growth in June almost stalled. Last month, gas production growth returned to the red with a 2.4% YoY decline, while growth in oil output moderately ticked up (according to CDU TEK). Besides, the annual change in electricity output stayed only slightly above zero at 0.4% despite the hot weather (which triggers additional demand for air conditioning) and a better calendar impact. Given the aforementioned factors and an anticipated recovery in manufacturing output after the post-crisis low in May, owing, among other things, to a less harmful calendar factor, we expect IP to print a modest rebound in YoY growth in June.
Weaker RUB predefined higher cost pressure; neutral for YoY inflation. The cost inflation sub-indices of the Manufacturing and Services PMIs pencilled that inflation pressure on the companies ticked up and remained below their long-term averages. The key factors of the bounce in cost pressures were recent RUB weakness and a rebound in metal prices. Nevertheless, assuming that RUB got stronger YoY in June, we believe the recent sell-off on the local FX market will not translate into higher annual inflation. And given the currently intense favourable base effect in food prices, we expect headline CPI growth to slide below 7.0% as early as in June.