Rosstat has reported a 0.7% cumulative price growth for March with one week to go. Average daily inflation remained at 0.03%. Leading the price growth was black tea (1.1% WoW) followed by tinned meat (1.0%) and sunflower seed oil (0.9%).
The headline figure has not budged for the fourth consecutive week, providing additional evidence that the underlying adjustment to the exchange rate shock has mostly run its course. This print makes us fairly confident of the full-March number coming at 17.0%, or slightly below, as it would now take as much as a tripling or quadrupling of the current run inflation rate of 0.22% WoW to bring noticeable upside surprise to our forecast. However, there are two risks that remain. The more substantial risk comes from the potential pent-up exchange rate pass-through, the recent example of which came from the announcement by two major distributors that a double digit tea price increase has been scheduled for April. The more technical one concerns the fact that near the end of the month, Rosstat obtains the data for the full set of monitored prices and to an extent adjusts the weekly print to bring it in line with the headline figure. That, in turn, results in weekly inflation becoming more volatile in the final weeks of the month.
On balance, the released figures, combined with the recent rouble strength, point to the growing demand gap. We expect faltering demand to start dragging the headline lower, which would increase the likelihood of a more front-loaded path of policy rate normalisation.