Page 35 - RusRPTSept19

4.2.1 CPI dynamics
Russian consumer prices were flat over August 20-26. The harvest continued to drag down the prices of fruits and vegetables during the period (they fell 3.3%). As a result, consumer prices were down 0.2% since the beginning of August. Analysts expect the monthly inflation reading for August to come in at negative 0.2% m/m as well. Given the current price dynamics, it looks like y/y inflation will probably drop below 4.0% by year-end.
Russia's consumer price index (CPI) posted a growth of 0.2% month-on- month in July, with year-on-year inflation slowing to 4.6%, according to the data of the Rosstat agency. The m/m inflation was below the consensus expectations of 0.2%. In y/y terms inflation was in line with expectations and on the way to converge to the Central Bank of Russia (CBR) target of 4%.
The current CBR target is 4.2%-4.7% for 2019. A Reuters analyst survey at the end of July had an inflation forecast of 4.2% for 2019 and 3.9% for 2020. Previously the Ministry of Economic Development argued that inflation could overshoot below 4% already in 2019.
Commenting on July 2019 data, Sberbank CIB wrote that "core inflation (which does not include seasonally volatile prices for fruits and vegetables, regulated tariffs and fuel), a proxy for monetary inflation, remained at 0.2% m-o-m for the second month in a row."
"This means that annualized inflation... was down to only 2.9%," Sberbank argues, expecting the y/y inflation to end the year 2019 in the range of 3.8- 4.2%.
VTB still expects y/y inflation to end the year 2019 in the range of 3.8- 4.2%. The July inflation data makes it look like we are likely to get a year-end reading below 4%. If this happens, it would be a rather remarkable event, as the VAT hike at the beginning of the year is estimated to have added almost 1 pp to headline inflation. In fact, annualized core inflation is already
35 RUSSIA Country Report September 2019 www.intellinews.com