Annual inflation has been firmly on an upward track and last week added another 10bp to 8.2% as of 13 October. The pace of acceleration is faster than we expected and by the end of this month the headline CPI growth might achieve 8.3% YoY (if the average daily inflation continues to be at 0.030%).
Component-wise, we saw some positive developments across those food CPI items which are included on the embargo list, including the normalisation of meat-related prices. In particular, weekly pork inflation abated to 0.2%, the lowest since early August. On the other hand, the rise in retail prices on fruit and vegetables started to gain pace, but that can only partially be explained by seasonal factors. Cucumber and tomatoes alone added more than half of the registered WoW inflation (near 14bp vs. 21bp). Also, gasoline inflation continued its upwards trend for the fourth week in a row and hit a three-month high of 0.4% WoW.
The monetary policy forecast hinges on the current rouble weakness underway, which is the biggest challenge for the short-term inflation outlook. Given the regulator’s greater tolerance towards cost-push inflation, it is hard to predict what scale of rouble weakness might be treated as being of concern (in terms of inflation expectations and, consequently, medium-term inflation). That said, we are maintaining our view that the current herd behaviour on the FX market is usually only broken by decisive action from the regulator (a hike in rates and bolder FX support).