Page 31 - RusRPTNov18

an upward trend posting 3.4% year-on-year versus 3.1% seen in August and 2.5% in July, according to the data of Rosstat statistics agency.
Previously as inflation broke out of CBR's forecast of 2.8-3% , while sanction pressure provoked volatility and pressure on Russian assets, the Central Bank of Russia (CBR) surprised analysts by front-loading the monetary policy rate with preventive 25bp hike to 7.5% .
But the CBR has surprised the analysts not only with increasing the rate, but also with considerably worsening the inflation forecast, now seeing the CPI in 2018 at 3.8-4.2% (up from 3.5-4%), and for 2019 to 5-5.5% (up by 1pp from previous 4-4.5%).
In September both non-food and food categories remained under inflationary pressure, with food inflation at 2.5% y/y (up from 1.9% in August), and non-food at 4% (up from 3.8% in August). Services inflation inched to 3.8% from 3.7% in the previous month.
However, current inflationary dynamics are safely within the CBR's revised outlook and make further increase of the key interest rate to 7.5% at the next meeting on October 26 unlikely, the analysts surveyed by Reuters believe. The September Reuter analyst survey shows consensus expectations of annual inflation peaking out at 5% in the first quarter of 2019 and moderating to 4% in the first quarter of 2020.
Consumer demand might moderate in the coming months, which should also ease inflationary pressures. The latest Consumer Confidence Index compiled by Rosstat in the third quarter of 2018 dropped by 6pp to -14% on the background of the market turbulence in July-September.
Inflationary expectations of Russian for the next 12 months rolled back in October to 9.3% from 10.1% following the stabilisation of ruble and gasoline price, according to the monthly report by the Central Bank of Russia (CBR). Price pressures from main commodities and gasoline is in focus, as the Central Bank of Russia is ready to further tighten the monetary policy should price growth spin out of control. Recent reports suggested that wholesale sugar prices are under pressure due to low harvest of beets. Inflationary expectations have been high since May due to higher gasoline prices. In October the share of the respondents who noted gasoline price growth declined to 31% from 36% seen in September. Gasoline prices remain the number one factor forming inflationary expectations for the respondents, the CBR notes. It is followed by ruble weakening and food prices. The regulator noted that focus on certain factors that are more volatile than other consumption basket elements renders inflationary expectations unstable.
Russia's Ministry of Economic Development revised its inflation forecast for 2018 from the previous 3.4% to 4%, assuming a stable ruble exchange rate until the end of the year. The ministry expects the ruble to average RUB64.5 to US dollar in October and RUB63.9 in November-December. In October, inflation is expected at 3.5%-3.7% year-on-year and 0.4%-0.5% month-on-month. Inflation in Russia in September remained on an upward trend posting 3.4% year-on-year versus 3.1% seen in August and 2.5% in July, according to the data of Rosstat statistics agency. Previously as inflation broke out of CBR's forecast of 2.8-3% band and sanctions pressure provoked volatility for Russian assets, the Central Bank of Russia (CBR) surprised
31 RUSSIA Country Report November 2018 www.intellinews.com