Inflation showed more signs of moderation, but more action from the CBR is expected

RUSSIA ECONOMICS - In Brief 21 Jul 2021 by Alexander Kudrin

Rosstat reported that the weekly consumer price index during the period ending July 19 turned slightly negative (-0.01%), i.e., into a kind of mini-deflation. As of July 19, inflation MTD was at 0.38% (in 2020 it was almost the same during the comparable period – 0.35%, while inflation YTD reached 4.59% (versus 2.99% in 2020). Inflation recently moderated on the back of seasonal deflation due to harvesting season, but not only, as in the case of a broader range of products prices started to fall. It looks as though consumer demand became less overheated compared to previous months. GKEM Analytica expected y-o-y inflation to stabilize in 3Q21, but it is happening at a higher level. If deflation persists in the next weeks, which is a likely scenario, then the y-o-y inflation in July may remain at around 6.5% (i.e., the same as in June) and could even slightly come down. In 4Q21 y-o-y inflation will start falling fast due to a base effect.The CBR has to announce its next key rate move on July 23. The money market rate RUONIA, which was below the key rate until recent weeks, started to grow in the past trading sessions and reached 5.85% As of July 20, implying that markets anticipate some action from the regulator – 50 bps looks likely.Evgeny GavrilenkovAlexander Kudrin

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