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CPI – no surprises in February – pass-through yet to come

Last month, headline CPI accelerated 0.1pp to 6.2% YoY, a tick slower than we and the consensus expected. Component-wise, an advance in food inflation was the largest driver, contributing 0.17pp to the acceleration in annual CPI. It was not a surprise, given the almost immediate pass-through from a weaker currency. Looking deeper into the details, the prices of fruit & vegetables (from 7.7% to 10.1% YoY) and meat & poultry (1.8% vs. 2.8% YoY) added most to the acceleration.
Inflation ticked up in February – albeit rather mildly – amid accelerating price gains for certain food items. Core inflation remained in check at 4.6% YoY but picked up sequentially on the pass-through from a weaker rouble. Looking ahead, the FX pass-through is set to keep headline CPI elevated over the next 2-3 months, but disinflation is to come with a vengeance in 2H14, in our view. Although FX is paramount for the CBR at the moment, inflation is to come back to the fore after rouble stabilisation, we believe, and the path we expect it to take suggests any reversal of the recent ‘temporary’ tightening is likely to be gradual, with most of the easing coming in 2H14.
Daria Isakova, Vladimir Kolychev
VTB Capital analyst

CPI, Russia

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