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CPI – June; past the summit – no more supply-side shocks on the way down, please


Last Friday, Rosstat published its full-June CPI report. Annual headline inflation advanced to 7.8% as of the end of June (from 7.6% in May), in line with expectations and the latest weekly CPI report. Component-wise, since February 2014 the effect from the shock on the meat and poultry markets remains the main inflation engine; despite softening in June, it added 0.26pp to the YoY acceleration in headline inflation (if the ban on pork imports from the EU had not been imposed, current headline inflation would have been running at 6.9% YoY). Otherwise, the recent pick-up in gasoline prices and housing tariffs contributed 0.03 and 0.02pp, respectively. In contrast, owing to the favourable base effect, slowing gains across fruit and vegetable prices shaved 0.25pp.

June’s 7.8% YoY print has likely marked the end of the steady inflation uptrend throughout 1H14. Food inflation (meat in particular) was once again the main culprit, while core inflation stabilised near 5.3% YoY, suggesting that the pass-through from a weaker currency is moderating. Dissipating shocks across several food categories, slower tariff growth, a fading FX pass-through and demand-pull disinflation will, in our view, help to pull CPI down in 2H14. We also continue to see scope for a target undershoot in 2015, although the upside risks on the supply side need to be monitored carefully.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst


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