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Weekly CPI – inflation creeps up to 6.5% YoY as of 17 March

According to Rosstat, CPI growth reached 0.54% during 1-17 March. Over the last week, average daily price growth advanced slightly to 0.034% (vs. 0.029% a week ago), staying well above levels observed in January-February 2014, as well as March 2013. Component-wise, inflation this week was led by vodka and gasoline prices (+1.3% WoW and 0.5% WoW, respectively), while price gains in sugar (+2.3% WoW) and potatoes (+2.0% WoW) were among second-tier drivers.

On an encouraging note, fruit and vegetable prices started to abate last week with the second lowest growth pace YTD. Also, egg prices decelerated visibly.

At the same time, sugar price growth has progressed, and looking ahead a weaker rouble and geopolitical tensions are risks that are set to remain on the cards. A second-round effect from a 17% hike in the minimum retail price on vodka kicked off, pushing vodka to a top inflation driver over the reported period. Gasoline prices usually lag RUB weakness, and therefore the recent pick-up in gasoline inflation could well stem from sharp RUB sell-offs earlier this year.

We stick to our view that the monthly advance in prices might reach 0.9% in March, given flat average daily price growth at near 0.03% during the rest of March. In this case, the full-March headline CPI would show an increase in annual growth to 6.8% YoY, the highest since June 2013. It is worth noting, however, that 1H14 elevated headline inflation is due solely to supply-side shocks and will not prevent strong 2H14 disinflation on the back of the new tariff policy, cyclical slowdown and favourable base effect in food. 

Daria Isakova, Vladimir Kolychev
VTB Capital analyst


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