Page 37 - bne IntelliNews Country Report: Russia Dec17

July and August, its contribution has now faded away entirely , as the category added 2.7% m/m, even more than the 2.5% reported in October 2016.
Food disinflation was mainly driven by the meat category . Meat prices declined 0.9% y/y (+1.6% y/y in September), which shaved more than 0.2pp off the headline price growth. Meat inflation has been slowing since July, but it has now reached historical lows.
The slowdown was primarily due to the high base effect of 2016 , when meat prices soared on the back of a recovery in household consumption, and the ruble strength and good grain harvests in 2016-17, which helped to cut costs and brought meat prices down, VTB Capital said in a research note.
Sugar prices continue to show the greatest decline , at -22.2% y/y, reflecting the good harvest of beet and sizable inventories of sugar.
Meanwhile, non-food inflation slipped to 2.8%, from 3.1% in September. The slowest growing items were in medical goods, clothing & footwear and passenger cars.
Services inflation remained at 4.2% y/y, still above the target set by the Central Bank of Russia.
Sugar & fruit remain a drag and services price growth is (almost) insensitive to the FX pass-through and price swings in global tradables, which means it is a fitting proxy for demand-driven price pressure, according to VTB Capital.
"The current report implies that we shall most probably end up with inflation of less than 3%," VTB Capital concluded. "More precisely, if prices add 0.4-0.5% m/m in the remaining months of 2017, then annual growth would stand at 2.7- 2.8% y/y."
The CBR published its inflation report for October . According to the CBR, the current inflation level is low due to temporary factors, and the regulator continues to treat the current CPI level as close to the target. The Bank of Russia expects that inflation will pick-up close to 4% level in the 1H 2018, when the impact of the temporary factors will fade out.
4.2.2 PPI dynamic
Prices of industrial products delivered domestically were up by nearly 8% y/y this year so far. The rise matched last year's pace, even if it has moderated in recent months. The brisk pace was basically due to an acceleration of increases in extractive industry prices to 15% y/y. The rise in manufacturing producer prices slowed slightly from last year's pace and in recent months has been running at around 6% y/y.
The rise in producer prices in both extractive industries and manufacturing came focally from oil, oil products and the metal industry that have heavy weights in the industrial producer price basket. As in previous years, their domestic producer prices have tracked the rise in export prices in these branches. In various manufacturing branches with longer processing
37 RUSSIA Country Report December 2017 www.intellinews.com