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CPI - September; perfect storm for inflation

 
06.10.2014

Headline CPI jumped 40bp to 8.0% YoY, the sharpest upturn since March 2014, coinciding with the recent weekly inflation prints. Component-wise, the pick-up in food inflation (to 11.4% YoY) came on the back of the unusually modest monthly deflation in fruit & vegetables (that added around 25bp to the acceleration in headline CPI) and price gains on products that were affected by the recent extension of trade restrictions, with meat contributing almost 23bp to the headline acceleration. The moderating gasoline and tobacco inflation was supportive, but only marginally (shaving 3bp off the headline CPI).

VTBC core inflation demonstrated a slightly stronger upward trend, with annual growth edging up to 5.5% from the 5.2-5.4% seen over the previous four months.

A range of external shocks severely hurt inflation in September, as the pass-through effect from the weaker currency intensified the inflationary impact from the food ban. As a result, inflation printed a three-year high of 8.0% YoY last month. Almost the entire 0.4pp headline acceleration was due to faster gains in food prices (chiefly, meat and fruit & vegetable), while core inflation demonstrated resilience: up a mere 0.1pp. If oil prices stabilise near USD 90-95/bbl, headline inflation will likely peak near 9% in 1H15 before strong disinflation. The cost-push inflation underway will likely prompt the CBR to preserve its tight stance, but given rising tolerance towards elevated inflation, we do not expect additional hikes unless extra shocks take place. 

Daria Isakova, Vladimir Kolychev
VTB Capital analyst

Tags:
CPI, inflation

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