Over the last reported period, the growth in vodka, potato and onion prices were again the key contributors to weekly inflation. However, for the YoY CPI growth their performance relative to January 2013 is of greater importance. In the first 27 days of January this year, the increase in vodka prices added 0.09pp to headline CPI growth vs. 0.41pp during 1-28 January 2013. Hence, most of the observed slowdown in headline annual inflation (to 6.2%, from 6.5% as of the end of 2013) was due to the beneficial base effect in this item (despite a hike in minimum retail vodka prices).
Given flat average daily price growth at 0.019% during the remaining days of January, as well as an increase in the tariffs for railway services (this item is not in the weekly CPI sample), we might see full-month CPI growth of 0.7% MoM, or 6.1% in YoY terms.
Also, the full-month report for January is critical in terms of core inflation that could reveal a correction after December’s pick-up in prices for several market services. As far as the recent turmoil on the FX market is concerned, we believe that it will likely push core inflation up slightly in the coming months, but the scale of the RUB pass-through would be limited to 0.5pp (at a pinch).