Early March daily inflation progressed to 0.036% (pushing YoY headline CPI growth higher to 6.3% as of 3 March), the highest level since mid-July 2013, due to the pick-up in prices on eggs (0.9% WoW, after 2.5 months of deflation), slightly accelerating price gains for vodka, no deflation in heating cost and higher transportation tariffs (+0.6-0.8% for tram and trolleybus tickets). Seasonal vegetable disinflation could have helped, but the RUB sell-off has dampened a downward move leading to flat fruit and vegetable prices at 1.2% WoW over the reported period (vs. 0.3% WoW a year ago).
While vodka prices are set to normalise in the near future, as the ongoing upturn links to a second-round effect from the 1 January 2014 hike in the minimal retail price, and the upturn in the prices for eggs and transportation services seems to be one-off, stable vegetable prices might imply the pass-through becoming entrenched.
We believe that full-February headline CPI is to show an increase in annual growth to 6.5% YoY, with a monthly advance of 0.7% (given flat average daily price growth at 0.022% during the remainder of March). Overall, this is likely to be due to transitory shocks and in any case does not put the CBR’s target at risk.