According to Rosstat, CPI growth reached 0.42% during the first half of April. Over the last week, the average daily price growth softened slightly to 0.028% (from 0.032% in the previous week), remaining below that we saw over the same week in April 2013.
Component-wise, inflation last week was led by i) non-reported items – perhaps, car and pork prices; and ii) a reported bunch of items with the largest contributions from cabbage (+3.7% WoW), potato (+0.9%), gasoline (+0.2%), sugar (+0.6%) and dairy (0.4%).
Our View: It is encouraging that price gains across the fruit and vegetable category as well as sugar and continued to moderate, while gasoline inflation stabilised at 0.2% per week. More worryingly, dairy and pork inflation might still pose upside risks for the headline CPI. As for the former, the acute deficit of raw milk as farmers had to slaughter their livestock following a spike in fodder prices and failures in government support for dairy farming has pushed dairy prices by more than 20% YoY. We think, though, that most of the shock has already happened and dairy inflation is likely to dissipate (especially into the favourable base effect in 2H14). As for pork, the ban on EU imports has already pushed wholesale pork prices by up to 30-40% YTD and it is now starting to filter through into retail prices. We estimate it might add some 0.3-0.5pp to the headline CPI in the coming months.
Looking at our monthly bean-count, we expect 0.8% MoM for April, which would likely translate into 7.2% in YoY terms. Beyond April, we await headline CPI peaking in May-June on FX pass-through and pork inflation and significant disinflation into 2H14, although idiosyncratic shocks in dairy and pork categories pose upside risks to our year-end forecast (4.5% YoY).