Page 44 - RusRPTJul21

4.2.1 CPI dynamics
May's CPI rate increased by 0.7% m/m or 6% annualized. The rate is the highest level since October 2016. The market were forecasting 0.6% m/m and 5.8% y/y inflation.
The most important driver for inflation were hikes in fresh food prices (2.9% m/m) – these reflected seasonality as well as RUB devaluation in the previous months.
Overall, in May, food became more expensive by 1% m/m, while prices of non-food consumer goods increased by 0.7% m/m and the cost of communal services rose by 0.4% m/m. Among non-food goods, the highest price increases were in construction materials (5% m/m) and tobacco (2% m/m).
A 50-75bp rate hike is now on CBR’s table. We believe that on 11 June, when CBR’s BoD next meets, it will have to consider the possibility of a rather sharp hike in the key rate.
CBR Deputy Chief Yudaeva said that the bank will be deciding between 25 and 50 bp rate increase; however, we believe that in the light of the latest inflation reading the bank will have to choose between 50 and 75 bp rate hike.
Even under the most favorable scenario – stronger ruble rate and good harvest this year – it will take another 3-4 months before we will see a decline in y/y inflation.
In the meantime, CPI rate might keep on growing in y/y terms for at least another month. In June 2020, monthly increase in CPI was 0.2%, which now is a rate of growth that we see in 1-2 weeks.
Despite higher inflation in May, BCS retains its YE21 forecasts: we expect inflation to slow to 5% y/y and CBR’s key rate to stand at 5.5%.
4.2.2 PPI dynamics
Producer prices in Russia jumped 35.3% year-on-year in May of 2021, accelerating from a 27.6% rise in the previous month.
It was the biggest increase in producer prices since the series began in 2005, with upward pressure coming from manufacturing (25.6%); extraction of raw materials (9.9%); electricity, gas, steam & air conditioning (5.3%) and water supply (3.8%).
On a monthly basis, producer prices advanced 2.3%, following a 2.7% gain in April.
44 RUSSIA Country Report July 2021 www.intellinews.com