Page 17 - RusRPTOct21

MoMasis (-3.7% SA MoM in July vs. -1% SA MoM in June and -0.5% SA MoM in May). Public catering services contracted for the third month in a row (-1.1% SA MoM in July vs. -2.9% SA MoM in June and -0.1% SA MoM in May),” Sova Capital said in a note.
The current correction, which is expected to be mild and simply caused by the size of the swings in the economy in the last year, was also highlighted by the services PMI which wentack into the red in August, according to IHS Markit Russia Manufacturing Purchasing Index (PMI).
Russia’s seasonally adjusted services PMI fellelow the 50 no-change mark to 49.3, down heavily from 53.5 in July as the lowbase effects wear off, Markit reported on September 3. The manufacturing and composite PMIs were also both back underwater.
Retail is being hurty the high levels of inflation that the Central Bank of Russia (CBR) is struggling to contain despite reversing almost seven years of easing and introducing a string of rate hikes this year – March (25bp), April (50bp), June (50bp) and July (100bp).
Inflation remains stubbornly high at 6.5% for the last two months and weekly inflation data released on August 30 suggests the next post will increase to 6.7% for August. The pressures come from a weaker-than-expected deflation in fruits and vegetables, as well as from non-food goods, which got a boost from the RUB 10,000 payments made to families with school-age children, reports Sova Capital.
Food inflation was running at 7.4% in July, while non-food was 7.5%, although inflation in services was only 3.8% as demand cooled, according to the CBR – a result confirmed by Markit’s poll of business owners.
Consumer’s expectations for inflation remain elevated with the FOMs monthly survey, commissioned by the CBR, reporting the median expectation for price rise over the next 12 months of 12.5% -- more than twice the CBR’s forecast for inflation to fall back to its target 4%. Russians with no savings, for whom food makes up a disproportionately large part of their shoppingasket, expect prices to rise even faster, at a whopping 18.3%, FOMs reported this week. That is even higher than the 18% expected last week and the 9.9% expectation average last year.
CBR governor Elvira Nabiullina haseen concerned that the shopping public’s expectation for price rises hasecome “unanchored” from reality and that is impacting retail turnover and is itself inflationary.
“CBR is scheduled to meet to discuss the key rate on September 10, said in a note. “This will mark the first time CBR has met since hiking the rate 100bps in July, when CBR's rhetoric was moderately hawkish, assuming additional policy adjustments based on economic conditions. Although CBR officials denied giving a clearer signal vs. July this week, the most recent developments have shown that inflationary pressures arising from supply-demand mismatches have persisted, a problem further amplified by the looser fiscal policy
17 RUSSIA Country Report October 2021 www.intellinews.com