July CPI increased 15.6% y-o-y boosted by regulated services and RUB devaluation

RUSSIA ENERGY / FINANCE - In Brief 04 Aug 2015 by Marcel Salikhov

Annual inflation increased from 15.3% y-o-y (+0.2% m-o-m) in June to 15.6% y-o-y (+0.8% m-o-m) in July. Food deflation continued with food prices declining 0.3% m-o-m compared to -0.4% m-o-m in June. Main reason for increase in inflation is traditional increase in regulated prices and tariffs. Since 2012 these components are indexed in July, not in January. In general, housing costs increased 7-10% m-o-m which is significantly lower than annual inflation. Ministry for Economic Development which is responsible for setting limits on regulated prices insisted on lower-than-inflation indexation. Still the indexation pushed inflation higher in July on monthly and yearly basis. Inflation is set to decrease in 2H2015 due to ‘base effect’ and continued decline in economic activity and aggregate demand. At the same time new round of RUB devaluation is expected to increase inflationary pressure. For example, foreign toursim services increased 4.6% m-o-m in July and 5.3% m-o-m in June. We estimate that current EPRT is 0.4, i.e. RUB depreciation to the currency is by 1% increases inflation by 0.4 p.p. The maximum effect is reached after 5 months after the shock. CPI by major product groups, Jan 2013 - July 2015

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