Yesterday, Rosstat reported weekly inflation at 0.21% for 1-7 September. The average daily inflation for the first week of September was 0.023%, which is triple that for the same period in August. The broad picture is the same as in the last weeks of the previous month: deflation in the fruits and vegetables segment is gradually fading, and is no longer able to contain inflationary pressures from other items. This week, the average decline in fruits and vegetables edged lower to -0.9%, from -1.5% the week before. The key deflationary contributors were carrots, potatoes and onions, with prices sliding down 6.2%, 5.1% and 4.0% respectively.
Despite the high print, headline inflation is still hovering at 15.8% YoY, the same number as last week, due to the same price growth in the comparable period last year. The seasonal factor is easing off, as can be seen in the price dynamics of cucumbers and tomatoes. For the first week of September, their prices surged 5.4% and 1.3%, respectively, against 4.3% and -1.5% a week ago, contributing the most to the overall 0.2% WoW inflation. Sunflower oil and eggs are also pushing the consumer price index higher, with gains of 1.0% and 0.5% over the previous week. The tendency is likely to continue in the coming weeks, though we still expect headline inflation to slow to 12.5% as of the year end. In our view, the pressure will fade away shortly on the back of the i) high base inflation of the last months of 2014 spurred by RUB’s sharp movement and ii) front-loaded manner of the pass-through effect from the recent FX volatility.
A pick-up in the run rate of inflation provides further reasons for the CBR to leave its key rate on hold on Friday at 11%.