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Weekly CPI – weekly inflation shoots over estimates, at 0.75% WoW, on tariffs


Rosstat has published its CPI report for the first week of July. The sequential rate spiked to 0.7% WoW, with average daily inflation as high as 0.123% (compared with 0.006% in June). Seasonal factors continue to weigh on vegetables, with tomatoes and cucumbers becoming 10.0% and 10.1% cheaper, respectively. In the meantime, the key driver behind the price growth was the one-off indexation of household utilities tariffs, at an average rate of 8.3% YoY.

On our estimates, the current inflation print pushed headline inflation closer to 15.9% YoY, almost 0.4pp above our forecast of 15.5% YoY. The source of the shock is presumably tariff indexation, as cold and hot water supply, sewage, electricity and other services were marked up 5.4-6.3% WoW. However, taking their weights in the consumer basket into account, we estimate that tariffs accounted for 0.32pp of the 0.7% WoW inflation.

The other items might have contributed in the range of 0.0-0.1pp, leaving as much as 0.3pp unexplained by inflation in items reported on a weekly basis. Our baseline hypothesis is that Rosstat has accounted for tariff indexation in a more front-loaded manner than was typical for 2013-14, when the spike in tariffs would take 3-4 weeks to trickle down fully into the headline figure. If that is the case, than their contribution this week (which is not consistent with their weight) will be reversed in the coming 1-2 weeks, as the run rate of inflation reverts to near zero or slightly negative levels.

An alternative explanation would be that Rosstat registered a spike in items that are not reported but are estimated, including mainly non-food items and services. This would mean that the tariffs contribution would follow its usual path and produce an additional contribution of 0.08-0.12pp to the run rate, at least in the coming 3-4 weeks.

On balance, we stick to our 15.0% YoY inflation projection for July but see upside risks to it. From the monetary policy standpoint, an inflation spike is of consequence inasmuch as it can feed into inflation expectations. Thus, the CBR is likely to monitor closely the data in the three reports that are due before its Board of Directors gathers on 31 July.

Alexander Isakov, Petr Grishin
VTB Capital analysts


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