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CPI – drops to 15.3% YoY in June

 
07.07.2015

Headline CPI continues to decline, reaching 15.3% YoY in June, in line with our call and a notch lower than the Bloomberg consensus of 15.4% YoY. The composition of disinflation remained similar to the previous month, i.e. predominantly determined by food price inflation sliding to 18.8% YoY (from 20.2% a month earlier). Services inflation produced a marginally positive contribution in June on higher prints across the board. There was a new development in non-food inflation, which made a marginal (but nevertheless negative) contribution, hinting at a possible acceleration to come.

Food disinflation to dominate in the coming months. In June, the largest negative contributions were produced by meat and poultry (15.0% YoY, compared with 18.2% YoY in May) and fruit and vegetables (22.8% YoY vs. 25.7% YoY). Lower food inflation was, in significant part, helped by the fact that the import ban, while extended for another year, has not become stricter, with the list of banned products staying roughly unchanged.

Pass-through might have run its course in non-food. The most visible change in the report is non-food headline inflation edging lower to 14.2% YoY. The contributions from individual items are marginal, but we see this data as a tentative sign of more pronounced disinflation to come in non-food items, the full force of which might be felt closer to YE15. Services inflation had a marginally positive contribution on utilities and international tourism inflation accelerated.

We expect demand weakness to continue weighing on price growth. After a one-off spike in inflation due the indexation of tariffs this week (as registered in Rosstat’s weekly report), we expect the headline to go back up temporarily to 15.4-15.6% YoY. However, the spike will likely dissipate to 15.0% YoY by the end of July. Policy-wise, this print is neutral and so we are leaving our estimate of a 50bp key rate cut at the CBR’s BoD meeting on 31 July unchanged.

Alexander Isakov, Petr Grishin
VTB Capital analysts

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