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September 8, 2017 www.intellinews.com I Page 10
Russian deflation overshoots in August
bne IntelliNews
Russia's deflationary trend continued in August exceeding the expectations of both the authori- ties and analysts, with month-on-month CPI posting a change of -0.5%, the first monthly deflation since August 2011.
In year-on-year terms this brought CPI in Au- gust sharply down to 3.3% from 3.9% y/y seen in July, leaving little doubt that the inflation-mind- ed Central Bank of Russia (CBR) will comply with the 4% inflation target in 2017.
August's reading exceeded analyst forecasts such as the 3.7% y/y forecasted in a Reuters analyst survey, as well as the 3.4% y/y projected by the Ministry of Economic Development.
The trend appears solid, as core inflation re- mained muted at 3% y/y and 0.1% m/m in August, while food inflation moderated significantly.
Notably, the CBR will hold the next policy meet- ing on September 15 and is broadly anticipated
to resume the monetary easing cycle which was paused in July due to a surprise spike in infla- tion, expected currency movements, and in- creased external uncertainty.
After the positive surprise with August inflation, analysts surveyed by Reuters revised their ex- pectations for the meeting from a 25bp key inter- est rate cut to a 50bp reduction. The key interest monetary policy rate is expected to be cut from the current 9% to 8%-8.5% by the end of the year.
The CBR officials have not yet provided any guid- ance prior to the meeting, but the regulator's press service commented to Reuters saying that August "deflation exceeded expectations" and expressing confidence that the 2017 inflation reading will be within the target.
Nevertheless, some risks are still seen in the food segment, given the high volatility of fruit and vegetable prices and the upcoming harvest season, the CBR said.