Inflation in Russia may drop to 4% per annum

Inflation in Russia may drop to 4% per annum

12 April 2017

Finance Minister Anton Siluanov and first vice governor of the Central Bank of Russia Ksenia Yudayeva admit that inflation may fall below 4% this year. Earlier, the Economy Ministry admitted a possibility of more aggressive reduction of Central bank’s key rate due to slowdown of inflation. “Inflation is going down. We expect it at about 4% or even lower,” the minister said speaking at the annual conference in the Higher School of Economics.

“As of today, inflation makes about 4.2-4.3%. It’s not much left to reach the target. I don’t want to make any forecasts, but I don’t rule out that the target will be reached before the end of the year,” Yudayeva said in turn.

Source: www.vestifinance.ru

RESCUE comments:

Significant decrease of inflation enables the Central Bank of Russia to ease monetary policy. However, despite optimistic statements of the Finance Minister and CB vice governor, the Bank does not rule certain risks.

Note: On March 24, CB board of directors decided to cut the key rate from 10% to 9.75% per annum for the first time in a long period.

Inflation slowdown in Russia

Source: Sberbank of Russia

The risks of failure to reach targeted inflation rate include external factors, like positive forex volatility and the situation on food market (heavy crop and weak export).

At the same time, sharp inflation slowdown in Russia can be temporary, and ongoing growth of prices for services, which are less dependent on external factors, is a proof of it.

Note: In March inflation slowed down to 4.3% yoy from 4.6% in February. Inflation slowdown on a year-on-year basis (from 5.7% to 5.1%)ca be ascribed to non-food products. Prices for foodstuff and services decreased insignificantly: by 0.2 pp to 3.5% and by 0.1 pp to 4.2% respectively.

With no external shocks, in particular oil price changes, inflation in Russia will keep slowing down, and the targeted level will likely be reached.

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