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CPI - May; peak impact of external shocks

According to Rosstat, headline CPI annual growth advanced to 7.6% as of the end of spring (vs. 7.3% eop April), in line with expectations, and ticked up further to 7.7% as of 2 June (according to a separate weekly report). On a component level, the ongoing shock on the meat and poultry markets remains the main inflation engine (similar to a month ago) and this alone added 0.42pp to the headline CPI pick-up in annual terms. Also, some gains in housing services tariffs were a significant driver, adding 0.10pp to the headline number, similar to to the FX-triggered price hikes across core items. At the same time, owing to the favourable base effect slowing fruit and vegetables, inflation shaved 0.17pp from headline CPI growth.
Headline CPI reached 7.7% YoY as of 2 June, an almost three-year high, fuelled by external shocks. While the EU’s ban on pork imports spurred food inflation to just shy of the double-digit level, core inflation continued to crawl up, mirroring the recent RUB weakness (though we are seeing early signs of a softening of pace). As for inflation prospects, our thinking is still that growth in the headline measure will peak in June (with a 7.8-8.0% YoY print) and then promptly abate to 5.8% Dec/Dec. We retain our on-hold forecast for the forthcoming rate decision (16 June), but are concerned about hike risks.
Daria Isakova, Vladimir Kolychev
VTB Capital analyst


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