Headline CPI stood at 6.5% YoY last month, in line with the preliminary estimate unveiled on 31 December 2013. The detailed structure reveals that increases in food and services prices netted out. The key growth driver was a pick-up in services inflation to 8.0% YoY, and in particular household costs on foreign tourism and financial services (which added 9.1% YoY and 2.8% YoY vs. 8.5% YoY and 0.0% YoY in November, respectively). At the same time, food inflation came 0.2pp softer to 7.3% YoY, reflecting mainly egg, meat, and bread disinflation. Meanwhile, non-food prices remained at a three-year low of 4.5% YoY for the third straight month. Rosstat’s core inflation was also sticky, at 5.6% YoY.
Headline CPI ended 2013 at 6.5% YoY, surpassing the upper bound of the CBR’s target range. Although food inflation started moderating, some uptick in core inflation, mostly owing to a pick-up in market services inflation, did not allow annual growth in headline CPI to descend. We still suggest that the underlying disinflation trend remains intact, and believe that price gains across services will likely moderate in the coming month – especially as wage growth in that sector is set to slow. Policy-wise, the recent report will likely be neutral for now, but sustained acceleration in services inflation might delay monetary easing.
Vladimir Kolychev, Daria Isakova
VTB Capital analyst
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