January CPI (+3.9% m-o-m; +15% y-o-y) surprised to the downside

RUSSIA ENERGY / FINANCE - In Brief 05 Feb 2015 by Marcel Salikhov

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Rosstat published today January CPI data. Inflation surprised to the downside (+3.9% m-o-m) and was significantly higher than in December (+2.6% m-o-m). It’s maximum monthly growth in last 15 years (since Februrary 1999). On annual basis January inflation reached +15.0% y-o-y. We've expected to reach such values in February-March. Weekly CPI data pointed to much lower estimates but as weekly CPI basket is rather limited (64 items compared to about 690 items for monthly data) such divergences are rather common. Food inflation still is major inflationary force. In January food prices rose 5.7% m-o-m (+20.8% y-o-y). Food inflation contributed around 2.1 p.p. to headline figure (3.9%) with 1.2 p.p. coming from non-food products (+3.2% m-o-m vs +2.3% in December) and 0.6 p.p. coming from services (+2.2% m-o-m, same in December). Increase in food inflation on monthly basis in not limited to just imported stuff or products with high import share but also products of mainly domestic production like bread and cereals. It could signal growth in inflationary expectations both of companies and households. This data confirms our view that CBR was way too early to start decreasing key rate (from 17% to 15% as announced last Friday). In recent interview to Forbes.ru CBR’s Governor defended the decision claiming that EPRT effect is waning off. Well, it is definitely not. She also insisted that short-term goal for monetary authorities is still 4% by 2017. It’s hard to expect such an outcome without hawks at CBR. Current key rate value is actually zero in real terms. There’s a great chance that annual inflation will reach 16-17% by February-March effectively leading to monetary loosenin...