December CPI confirmed at 11.4% y-o-y, highest since August, 2009

RUSSIA ENERGY / FINANCE - In Brief 12 Jan 2015 by Marcel Salikhov

---

Rosstat released today CPI data for December which matched preliminary estimates published at year-end. In December consumer prices rose 2.6% m-o-m, highest growth rates since January, 2005. In annual terms CPI reached 11.4% y-o-y, maximum since August, 2009. Rise in inflation was broad-based. Food CPI was 3.3% m-o-m (15.5% y-o-y). Non-food CPI was at record 2.3% m-o-m (15-year maximum). Services inflation stood at 2.2% m-o-m (10.4% y-o-y). December inflation was boosted by consumer rush exaggerated by extraordinary volatility on FX market in mid-December. Bi-currency basket rose 19.3% m-o-m in December, from 51.63 RUB in November (monthly averages based on official CBR FX rates). RUB fall triggered major consumer run on imported durable goods and caused inflation hike. So last month prices for home appliances increased 12.0% m-o-m, prices for TV and audio equipment rose staggering 14.0% m-o-m on the back of surging consumer demand. At the same time food inflation, major cause of rising prices in last months, remains high and doesn’t show signs of stabilization. For instance, cereal prices rose 11.5% m-o-m (+34.6% y-o-y), sugar prices roses 14.3% m-o-m (+40% y-o-y), fruits and vegetables rose 12.9% m-o-m (+22.0% m-o-m). The main question is whether such large inflation hike persists in coming months. We think that in current circumstances lag time from exchange rate pass-though probably shortened from 3-6 month to 1-2 months and RUB devaluation causes almost immediate reaction for inflation due to front-run in consumer demand. Announced measures of support for banking sector announced in December helped to contain run on banks. Current level of interest rates on retail...