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March CPI – expected peak reached


Rosstat has posted CPI numbers for March. Headline CPI accelerated 0.2pp to 16.9 YoY. The print is in line with our view and consensus. As expected, this time around weekly data prints came very close to the actual figure.

The largest contribution to the headline figure came from the non-food product group, which added 0.32pp. One third of that came from the clothing and footwear group. As anecdotal evidence suggests, this product group enjoyed relatively scarce attention during the ‘flight-from-RUB’ panic consumption boom in 4Q14. This led to the accumulation of stocks and a longer than usual period of seasonal discounts. Therefore, the current uptick should be interpreted as another case of pent-up inflation, which is unlikely to produce significant second-round effects once prices adjust.

Food inflation decelerated markedly, subtracting 0.1 pp from the headline, with the fruit and vegetable group’s contribution standing at -0.22pp. At the individual item level, the granulated sugar price declined 3.4% MoM SA after showing double-digit growth in Dec-14-Jan-15, while eggs lost 1.7% MoM SA. The most pronounced growth was posted by vegetable oils (3.4% MoM SA) and pasta (2.7% MoM SA).

Overall, the data strongly supports a front-loaded pass-through hypothesis. The print sends a strong message to the CBR of the necessity to re-evaluate its assumptions considering the speed and scale of FX pass-through. To put it more technically, it appears that the sensitivity of price growth to the growing demand gap is higher, or that inflation expectations are less backward-looking than implied by the CBR’s inflation projections. We expect that as the residual pass-through wears off, the CPI weekly run will start to fall below the 0.2% WoW observed throughout March, which will likely result in April inflation being in the range of 16.6-16.8% YoY. We stick to our call for a front-loaded path of disinflation, expect that this print is likely to tip the balance at the next monetary policy meeting, scheduled to take place at the end of April, in favour of a more front-loaded path of rate normalisation.

Vladimir Kolychev, Alexander Isakov
VTB Capital analysts


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