August inflation increased 15.8% y-o-y; CBR will stay on hold in September

RUSSIA ENERGY / FINANCE - In Brief 09 Sep 2015 by Marcel Salikhov

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Inflation reached 15.8% y / y (+0.4% m / m) in August, despite the seasonal decline in prices for fruit and vegetables (-9.8% m / m). The main reasons for the acceleration of inflation are related to the dynamics of the ruble exchange rate. In particular, in August, non-food products rose by 0.8% m / m - mainly due to rise in prices for household equipment (+1% m / m) and gasoline (+1.6% m / m). Prices of services increased i 1.3% m / m (+ 3% m / m in July, + 1% m / m in June), mainly due to the appreciation of foreign tourism (+ 9.8% m / m) and education services (+1.3% m / m). On the back of new devaluation shock we expect annual inflation to increase and reach a local maximum in October-November within the 16,2-16,7% y / y. The inflationary shock threatens inflation targets of CBR. According to the forecasts of the monetary authorities, published as part of the August meeting on monetary policy, inflation in July 2016 was expected to fall below 7% y-o-y. We believe that the realization of this forecast is unlikely. According to our forecast, inflation will continue stay in the summer of 2016 in the range of 9-10%, which is 2-3 percentage points above guidelines of CBR. However, failure to comply with targets for inflation does not lead to a tightening of monetary policy. Currently, the Bank of Russia at the same time is trying to follow multiple targets (inflation, stimulate the economy and desire to accumulate reserves). Under these conditions, in spite of a formal inflation-targeting regime, the monetary authorities are not willing to provide the actual performance of their inflation goal. This, in particular, indicated results of the meeting in August. The Bank o...