The weekly CPI report implies that the annual growth in consumer prices remained at 6.0% as of mid-October, staying on the upper boundary of the CBR’s target range for this year. The acceleration in the weekly consumer inflation was mainly triggered by price rises speeding up on potatoes (to 2.7%, from 1.3% a week ago) and eggs (to 4.6%, from 3.4%), while gasoline inflation also ticked up.
We are convinced, nevertheless, as before, that a good harvest this year and a consequent decline in wheat prices will lead to lower production costs (the fact that fodder has not cheapened yet looks odd) and ultimately cristalise into disinflation in the food basket. That process, however, might take longer than historically was the case, especially in light of reported disruptions with potato harvest.
Hence, we have revised our forecast for the full-October CPI reading upwards to 6.0-6.1% YoY and see upside risks to our YE13 forecast of 5.4% YoY.