Page 37 - RusRPTMar19

4.2.1 CPI dynamics
Consumer price inflation rose 5.0% y/y in January. In particular, higher food prices since last summer appear to driving inflation. Rosstat reports that core inflation, which excludes prices of food, energy and administratively regulated prices, was up 4.1% in January.
The hike in the value-added tax (VAT) at the start of this year from 18% to 20% had a lower-than-expected impact on consumer price inflation in January. It seems that the effects of the VAT hike will gradually pass-through to consumer prices over coming months.
As 12-month inflation is currently running near the lower bound of the Central Bank of Russia’s (CBR) inflation forecast for this year (5–5.5% at the end of this year), the CBR left the key rate unchanged (7.75%) at its rate review meeting on February 8. The CBR expects annual inflation to settle back to its target level of 4% in the first half of 2020. However, real interest rates in Russia are still rather high as the nominal average rate for corporate loans for over 12 months hit 9.2% in December.
4.2.2 PPI dynamics
The notable development in June was the increase in the producer price index that spiked to 16.1% y/y from a years worth of single digits, a pace unseen since 2015. This uptick was driven by the rise in oil prices, as prices of oil-linked goods made up 11pp of the headline growth, according to bankers. .
Ruble-denominated oil prices started to add more visibly in April, with +45.4% y/y, while in June they surged +74.5% y/y. Given that gasoline makes up 4% of the consumer basket, and taking into account the retail price structure, bankers estimated the total effect on consumer inflation in May at about +0.5pp.
However, the basket structures of CPI and PPI are completely different. While,
37 RUSSIA Country Report March 2019 www.intellinews.com