Annual inflation increased to 3.2% in June; 3.4% in July is expected

RUSSIA ENERGY / FINANCE - In Brief 10 Jul 2020 by Marcel Salikhov
Consumer price growth in June 2020 was 0.22% m/m and 3.2% yoy vs 0.27% mm and 3.0% yoy in May. Food inflation was 0.2% m/m (4.0% yoy) vs 0.16 (3.3% yoy) in May. Food inflation was the main driver of consumer prices increase in June. Prices for cereals increases by 2.3% m/m and gasoline prices increased by 0.8 m/m making the biggest contribution to monthly inflation. In the first week of July, consumer prices rose by 0.28% due to an increase in housing tariffs by 4-6% (depending on the region). In 2020 tariff increases are carried out only in July while last year the increase was made twice (in January and July). Therefore, July inflation this time will be higher than a year ago. We expect that monthly inflation in July will be 0.4-0.5%, annual inflation will reach 3.4%.In August-September last year, seasonal deflation was observed due to a good harvest. If this year, this does not happen, then by 4Q20 annual inflation will reach 4%, and by the end of the year, it may slightly exceed the target. Higher inflation may reduce the willingness of the CBR to continue an aggressive decline in the key rate.Chart. Annual inflation by major product groupsSource: Rosstat, IEF estimates

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