Page 44 - RusRPTFeb19

4.2.1 CPI dynamics
Russia’s consumer price index (CPI) rose slightly above the central bank target of 4% in 2018, the statistics service preliminary data showed on December 29 and ended the year at 4.2%. The outlook for 2019 is inflation could rise as high as 6% but will fall back after that to 4% by 2020.
Inflation is set to accelerate in January, as the government has hiked household heating and hot water tariffs in line with the November gas price hike. The tariffs have risen by 16-21% depending on the region. Given the weight of hot water and heating in the consumer basket (1.3%), we calculate that the move could boost headline inflation by 0.2_0.3 pp. However,
Preliminary price data from the first week of January suggests that the impact of the 2 percentage point hike in VAT at the start of the year on inflation will be more mild than some had feared. Rosstat’s data for January 1-9 show an increase in prices of 0.5%, leading the Bank of Russia to confirm its December inflation forecast for 2019 of 5-5.5%. This is still significantly above the 4% target, but the central bank unofficially admitted at the end of 2018 that prices could rise by 6% or more. A moderate pass-through from the VAT hike would come as a relief to the Bank of Russia, which was forced to raise interest rates twice in the second half of 2018 as a result of a jump in inflation expectations. According to Kommersant, almost no one believes the Bank of Russia will raise its policy rate again in February – but then again, its hike in September also came as a surprise to the market. Rising grain and fuel prices have also put upward pressure on inflation. The political significance of the latter was underlined by the government’s decision in November to force through a price freeze, to the major oil companies’ chagrin.
Consumer good costs will rise due to high fuel prices. Representatives of transport and manufacturing companies wrote a letter to Prime Minister Dmitry Medvedev in which they warned about the possible consequences of tightening the policy of fuel companies to corporate clients. Dmitry Vostrikov, Executive Director of the Rusprodsoyuz, estimated the share of fuel costs in
44 RUSSIA Country Report February 2019 www.intellinews.com