Page 45 - RusRPTAug21

pressures have the market anticipating a more aggressive hike in July, possibly by as much as 100bp (basis points).
VTB Capital on July 8 argues that June's CPI shock in fruits & vegetables and accommodation services is transitory, whereas price pressures in construction items are to remain persistent.
While VTBC analysts raise the 2021 inflation forecast to 6.2% y/y, they still expect the CPI run rate to gradually decelerate to target-consistent levels by the end of 2021. VTBC expects the CBR to raise the key policy rate to 6.5% by 2021, adding +50bp at the next meeting in July.
4.2.2 PPI dynamics
After exploding this year, Russia’s producer price index of inflation (PPI) peaked in May but still remains at record highs over 30%.
Consumer price inflation (CPI) has been a concern for the Central Bank of Russia (CBR) which has hiked rates four times in a row this year -- March (25bp), April (50bp) and June (50bp) – and was running at 7% in July.
However, from only 3.6% at the end of last year, PPI has exploded rising to 35.3% in May, its highest level since records began. The price rises are largely driven by the disruption caused to supply chains by the coronavirus (COVID-19) pandemic, which are now struggling to catch up as the economy bounces back strongly in the first half of this year.
Progress in rebalancing the economy and repairing the supply chains appears to have started as PPI rate came down in June to 31.1%, but producers inflation remains at elevated levels that will eat into both profits and the growth momentum.
45 RUSSIA Country Report August 2021 www.intellinews.com