Page 25 - RusRPTJuly18

VTB Capital commented that the inflation report for May showed two major opposing developments in consumer prices, with an anomalous lack of the pre-harvest pick up in fruit and vegetables prices on the one hand, partly offsetting the increase in gasoline prices and its second round effects on the other.
Food prices declined 0.1% m/m in May, with y/y growth slowing to 0.4% from 1.1% in April. The deflation was caused by fruit and vegetable prices, which declined 1.3% m/m. The government has also lent on the fuel producers to artificially hold prices back.
"Taking into account that the government has reached an agreement with major oil producers on retail gasoline prices (the producers agreed not to increase gasoline prices in exchange for a decrease in excise taxes), it is likely that there will be no major upward pressure on headline inflation from gasoline in the coming months," Sberbank believes.
Sberbank expects continuing deflation in food to lead to "quite significant disinflation in June", which would increase the risk that inflation will finish this year below the bank's forecast of 3.2% and thus below the Central Bank of Russia (CBR) target of 4%.
The CBR forecasts a gradual natural acceleration of annual growth of food prices in the coming months after deflation in May, according to the regulator's report on monetary policy. Inflation in Russia in May was 0.4%, in annual terms remained at 2.4%. Food inflation was 0.4% in annual terms, and in monthly terms deflation was observed at the level of 0.1%. Currently, the high supply of agricultural products in the domestic market continues to constrain the growth of food prices, making the main contribution to keeping inflation below 4%, the Central Bank said.
4.3 Industrial sectors and trade 4.3.1 Producers PMI
Operational conditions in Russian manufacturing sector deteriorated for a second successive month in June , with the manufacturing output dipping to joint-weakest since July 2016 and new orders declining for the first time in almost two years, the Manufacturing PMI data released by IHS Markit on July 2 shows.
Although Russian industrial output and manufacturing number in particular were recently beefed up by Rosstat retroactive series revision , the speed of recovery remains in question as recent reports suggest that the government is bracing for slowdown in 2018-2019 .
The seasonally adjusted IHS Markit Russia Manufacturing Purchasing Managers’ Index posted 49.5 in June, down from 49.8 in May, and below the 50.0 no-change mark indicating contraction. The current sequence of decline (at two months) is now the longest since May 2016, Markit notes.
Output growth remained marginal in June, and while the expansion extended the current sequence of increase to 26 months, but the rate of growth was below the long-run series average.
RUSSIA Country Report July 2018 www.intellinews.com