Page 13 - Eastern Europe Outlook 2020
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• Inflation
Russia had an excellent year in the fight against inflation. Having seen inflation fall to post-Soviet lows of 2.2% in 2018, by the end of that year it was back up over 4% – the CBR target rate – and remained over this level all year.
Russia's consumer price inflation posted 0.4% month-on-month in December 2019, translating into a 2019 full-year CPI of 3% year-on-year versus 4.3% y/y seen in 2019, according to the preliminary estimates of the Rosstat statistics agency. In December food inflation reached 0.7% m/m in and 2.6% for the full year, while non-food inflation reached a respective 0.1% and 3%. Services inflation came in at 0.2% m/m in December and 3.8% in 2019.
The CBR published a new lower inflation target of 2.9-3.2% in comments that accompanies the December cut, but still expects consumer price growth in the range of 3.5-4% by the end of 2020.
Russia’s annual inflation may slow to 2.5% in January-March and end up below the target level of 3% for all of 2020, Economic Development Minister Maxim Oreshkin believes. For the last few years the inflation target level has been 4%.
There is not much to drive inflation: no growth in lending, falling consumer lending, declining mortgage borrowing despite the reduced interest rates and corporate lending is at a low level. This means that there is no monetary impetus for the economy or inflation, says the CBR.
BCS GM says annualised CPI will likely hit its lowest levels in 1Q20 at 2.7-2.9% y/y and then may rise to 3.6-3.8% by the end of 2002.
• External sector
Russia continued to run a healthy balance of payments surplus thanks to its raw material exports and will continue to do so in 2020.
The recovery of oil to around $60-65 in 2019 was well ahead of the circa $40 a barrel of oil the budget needs to break even. A new OPEC+ agreement signed on December 9 has increased the level of production cuts (see below) that will support the price of oil at this level until March when the deal will be reviewed so there is little danger of Russia’s balance of payments changing much in the first half of 2020.
13 EASTERN EUROPE Outlook 2020 www.intellinews.com
