April CPI tops at 7.3% y-o-y

RUSSIA ENERGY / FINANCE - In Brief 06 May 2014 by Marcel Salikhov
Russian inflation continues to rise despite weak economy. April CPI came at 7.3% y-o-y (+0.9% m-o-m) compared to 6.9% (+1.0% m-o-m) in March. Most contribution came from food prices: 9.0% y-o-y (+1.3% m-o-m) in April. Core CPI y-o-y increased to 6.5% y-o-y in April compared to 6.0% in March. Inflationary pressure despite weak economy is caused mainly by exchange pass-through effects of RUB devaluation and lagging effects of increased duties on alcohol and tobacco. We think that inflation will peak in April-May at 7+%. Recent RUB stabilization and expected economic slowdown put ceiling on inflation. On April 25th, 2014 CBR increased the key rate by 50 b.p. to 7.5% on inflation concerns. But underlying reasons are more connected to limiting capital outflow and FX policy rather than ‘pure’ inflation factors. We think that rates decreases are unlikely in current environment of high uncertainty and increased geopolitical tensions. Rates decrease can follow only in 2H2014 to support the economy.

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