Inflation w-o-w staying low for a second consecutive week in December

RUSSIA ECONOMICS - In Brief 15 Dec 2021 by Alexander Kudrin

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Rosstat reported that in seven days ending December 13, inflation w-o-w was again at 0.06%, i.e., the same as a week before. In two weeks of December inflation reached just 0.12%, which was in stark contrast to much higher inflation seen in October and November (inflation YTD reached 7.64% by mid-December). Such a rapid deceleration was not anticipated as in November inflation accelerated and reached 1.1% m-o-m. Budgetary spending was moderate in November, which became known just recently. Rather moderate spending reduced inflationary pressure, but in December, federal budget expenditures will soar to meet the amended annual spending target. Inflation may stay elevated for a while, but it is now likely that the y-o-y inflation will start falling already in December. By year-end, it may even be close to 8.0%. Therefore, the CBR will face a dilemma – whether to raise the key rate later this week, or not to raise, and by how much if the former option becomes dominant? Meanwhile, the latter option cannot be ruled out as well as inflation decelerated sharply, which looked almost unimaginable a couple of weeks ago. Overall, the CBR may consider the key rate hike by not more than 75 bps, while the 50 bps may look like a better compromise.Evgeny GavrilenkovAlexander Kudrin