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CPI – March; weaker RUB adds fuel to inflation

Last month, headline CPI accelerated 0.7pp to 6.9% YoY, the sharpest spike since July 2012 when the timeline of regulated tariff hikes was shifted from 1 January to 1 July prior to the presidential elections. This came in a tick higher than we and the Bloomberg-reported consensus had expected, but in line with the recent weekly data point. Component-wise, an advance in food inflation was the largest driver (contributing 0.50pp to the acceleration in annual CPI) – hardly a surprise, given the almost immediate pass-through from the weaker currency. Also, a 12% YoY advance in vodka prices on the back of an increase in minimum retail vodka prices added 0.05pp to the acceleration. Meanwhile, increases in public transport tariffs also fuelled headline inflation.
The 1Q14 mayhem on the local FX market led to a spike in prices on food (especially fruit and vegetables) as well as certain import-related core items and, consequently, pushed annual growth in the headline CPI up to 6.9% in March, the highest level since June 2013. Reflecting the clash of opposing factors (a weaker rouble and meagre demand), core inflation crawled up to 4.7% YoY. We maintain our view that the inflation impact from the weaker rouble will likely linger for the next 2-3 months when headline CPI could exceed the 7.0%-mark before pronounced disinflation takes up the reins in 2H14. Although well-anticipated, this cost-push inflation will likely prompt the CBR to keep policy tight for longer, as was already suggested in officials’ rhetoric.
Vladimir Kolychev, Daria Isakova
VTB Capital analyst


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