Banks to benefit from decelerating inflation amid rising interest rates

RUSSIA ECONOMICS - In Brief 09 Aug 2021 by Alexander Kudrin

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According to Rosstat, m-o-m inflation reached in July 0.31%, which was a bit lower than in July 2020 (0.35%). Inflation y-o-y moved to 6.46% in July, which is a bit lower than a month ago. A few days earlier, Rosstat published its flash estimate of the consumer price change for seven days ending on August 2, which appeared deflation of 0.06%. The agency decided to split this figure into two parts – 0.04% deflation during the last few days of July and 0.02% deflation for the first two days of August.Even though Rosstat eventually began publishing inflation data with the two decimal points, it doesn’t mean that potential statistical errors could be ignored completely. Indeed, cumulative monthly w-o-w inflation may not necessarily be exactly the same as the final monthly figure – also not least because w-o-w and m-o-m inflation numbers are calculated based on somewhat different consumption baskets (the latter one is more detailed).All in all, inflation y-o-y is set to decelerate going forward as some deflation in August as a whole is likely. Food prices have just started to fall as the harvesting season is gathering pace. Hence one can expect quite a significant drop in most commonly used fruit and vegetable prices, as they skyrocketed earlier in the year. Meanwhile, food price inflation gradually moderates in most other segments of the market.Overall, inflation y-o-y will likely moderately decline in August and September. In 4Q21 it will decelerate faster. By year-end, it can reach 5.3-5.4%. It will leave the key rate positive in real terms (over 100 bps).Meanwhile, after the CBR hiked the key rate by 100 bps in July the money market rate RUONIA didn’t increase that much...