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CPI – August; new round of FX volatility delays disinflation


According to the data released by Rosstat, inflation accelerated to 15.8% YoY in August. The print overshot the Bloomberg consensus (15.6%) and came above the cumulative weekly inflation for August, which pointed to 15.7%. The negative contribution from the food category of -0.18pp was narrowly offset by the rise in services of the same magnitude, while non-food items pushed the headline inflation higher.

We had expected an overshoot from the cumulative weekly inflation of 0.3% MoM as the weekly report is overweight food items in comparison with the consumer basket. While food was supported by local seasonal supply, other components are more sensitive to the FX pass through.

The initial effect of the pass through is evident in services; they edged higher to 14.1% YoY on foreign tourism, which increased 10.0-11.6% MoM.Non-food inflation increased to 14.6%, but the pass through is less front loaded in this category and we expect it to adjust throughout 2H15.

Food inflation remains the only declining category, with the headline sliding to 18.1% YoY from 18.6%. Distributers are likely to reach an agreement with retailers to shorten the price revision cycle, as happened during the previous episode of FX volatility, leading to an acceleration in the pass through to food prices in the coming weeks.

The base inflation has also edged higher, because high growth items (i.e. tourism) have an even larger weight in the base index, while currently lower inflation items (i.e. food) are excluded.

Policy-wise we believe that the inflation surprise is an additional argument for the CBR to refrain from cutting the key rate at the Board of Directors meeting on Friday, but it is not yet significant enough to reverse the easing cycle and increase the key rate, as demand remains weak, with real wages down 9.2% YoY and stagnant retail lending.

The Ministry of Finance reacted to the print with an estimate of 12% YoY, which coincides with the CBR’s current baseline forecast. Traditionally more conservative, we believe the CBR will raise its estimate at the upcoming monetary policy report meeting. Taking into account the effects of the recent FX volatility, we estimate YE15 CPI inflation at 12.5%.

Alexander Isakov, Petr Grishin
VTB Capital analysts

CPI, Rosstat

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