So far as the federal budget is concerned, media leaks over the last couple of weeks generally confirm that fiscal policy in 2014 is to retain its contractionary stance under the new budget rule. Assuming a 1.0 fiscal multiplier, we estimate the impact on growth at near 0.7% of GDP. Also, the composition of shifts in the spending mix might become less investment-unfriendly.
The disinflation trend continues in Russia as demand- and supply-driven inflation factors stay subdued (we expect annual inflation to reach 6.1% in September vs. 6.5% at the end of summer). The key driver is slower food inflation and no hike in tariffs on 1 September this year. However, the translation of better harvest into the retail prices has taken longer than usual and there is still considerable room for food disinflation to pull headline CPI lower. We shall also be watching for signs of delayed FX pass-through impact on core inflation.