According to Rosstat, in April headline CPI came in line with market expectations, accelerating to 7.3% YoY, the highest since May 2013, when the poor harvest fuelled a spike in food inflation. Component-wise, a combination of the persistent upsurge in food inflation (to 9.0% YoY, adding almost 0.25pp to the acceleration in headline number) and FX-driven price hikes across core categories (0.10pp contribution) remained the main driver. As for the former, the spike in pork prices was by far the major catalyst as seen in the accelerating inflation in the meat & fish category, which contributed almost 0.20pp to the pick-up in headline CPI. Elsewhere in the food category, the continued price gains in dairy products was a significant driver, adding 0.06pp to the headline number. Meanwhile, a mix of weaker RUB and excise duty hikes fuelled inflation for such products as tobacco, alcohol and gasoline, which together contributed 0.05pp to the acceleration in headline CPI.
In contrast to the usual narrative blaming the FX pass-through for the recent build-up in inflation pressure, we note that it was predominantly idiosyncratic shocks on the food market (dairy and meat, in particular) that were behind the spike in headline CPI. While admittedly on the rise, the pick-up in core inflation has so far proved less severe than expected, contradicting the main official rationale behind the latest rate hike. Although we think disinflation, and policy easing, is imminent in the medium term (2H14-1H15), food inflation and the FX pass-through still present upside risks while elevated geopolitical uncertainty suggests that the risks are tilted to emergency tightening, rather than easing in the near term.
Vladimir Kolychev, Daria Isakova
VTB Capital analyst
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