While in January Russia showed one of the worst results across the EM universe as far as business sentiment is concerned (i.e.PMIs), in February activity seems to have stabilised.
February’s CPI report will likely see an uptick in YoY terms to 6.3% due to accelerating price gains for vodka as well as the first impact from weaker RUB, specifically on some food items. Looking ahead, FX pass-through on 9% YTD RUB weakness is likely to keep headline CPI relatively elevated, at around 6% over the next 2-3 months, but the bleak economic outlook is to ensure against the risk of runaway inflation. Sneaking beyond 1H14, headline inflation is likely to resume on a downward trend and slow to 4.5% by the yearend.
In Poland, the latest data suggest that the economic recovery is under way, and given the magnitude of the accumulated negative output gap this growth acceleration is far from jeopardising the benign inflation outlook. Hence, the NBP is likely to remain comfortable with the current forward guidance and continue to signal that policy rates are to be kept at 2.5% until mid-2014.
In Turkey, the CPI remains under strong pressure from weaker TRY and persistently high oil quotes, and therefore, could hit just shy of the double-digits level. However, given the forthcoming elections that are scheduled for this March, the authorities might try to postpone tariff hikes (in domestic gas and electricity prices).