According to Rosstat, CPI growth reached 0.1% in the first two days of March. Over the reported period, the average daily price growth dived to 0.2% (from 0.6% a week ago). Component-wise, the disinflation this week was broad-based, with tomatoes losing as much as 4% WoW and growth slowing in both rice (1.3%) and frozen fish (1.2%).
After last week’s spike, which was due to the significant 2.6% increase in passenger car prices, the first CPI print of spring indicates that price growth might be set on a downward path. Daily inflation in March has slowed to 0.04%, pushing the headline CPI to 16.5% YoY. That squares well with our projection of CPI peaking at 17.0-17.1% YoY in March, with the downward trend gaining momentum beyond 2Q15 on the back of weak demand.
However, as broad-based and general the decline in the inflation rate might appear (with a decline in the growth of virtually all components except urban transport costs) there remain some question marks as to the impact of FX depreciation. There is still some anecdotal evidence of a pent-up pass-through from FX into retail prices, as suggested, for instance, in yesterday's hike in AvtoVAZ’s car prices. We believe that the magnitude of this pent-up inflationary impulse is not particularly large and is likely to run its course over March. However, this needs to be monitored carefully in the coming weeks as a materially larger FX pass-through might not solely push up the CPI trajectory for this year, but also increase the risks of less benign second-round effects (a spillover into wage inflation).