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Weekly CPI – inflation runs at 6.4% YoY as of 11 March

According to Rosstat, CPI growth reached 0.34% during 1-11 March. Over the last week, average daily price growth somehow softened to 0.029% (vs. 0.036% a week ago), staying well above levels observed in January-February 2014, as well as March 2013. Component-wise, the inflation this week remained broad-based, while the main contributors were potatoes (+2.6% WoW), gasoline (+0.5%), sugar (+2.4%), onions (+2.5%), and vodka (+1.1%).

As vegetable prices have been among key inflation drivers since autumn last year, we were not surprised with another week of potatoes being a major contributor to average price growth. More worrisome, though, was the first evidence of faster price gains across dairy and sugar-related products in mid-March. Generally, these (including still‑elevated fruit and vegetable inflation) could be explained by the weaker rouble – particularly on the sugar market, which has 40% of imports that not only depend on the rouble, but on a specific partner, including Ukraine.

Worth noting is that the minimal retail price on vodka has been increased 17% starting from 11 March to RUB 398/l. This is in contradiction to our previous view that the planned increase implemented on 1 January would be the same as in 2013. Therefore, the absence of a slowdown in vodka price growth in February and early March looks more explainable, since now we believe that the second-round effect will be milder than pre-hike growth.

All in all, we cannot rule out that the monthly advance in prices will reach 0.9%, given flat average daily price growth at 0.03% during the second half of March. In this case, the full-February headline CPI would show an increase in annual growth to 6.8% YoY, the highest since June 2013. At the same time, this is likely to mirror transitory shocks and in any case does not put the our projected strong 2H14 disinflation at risk.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst

CPI, Rosstat

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