Russia inflation stabilizing

Russia inflation declined in August (per weekly data). The country's inflation was expected at 15.5% y/y, down slightly from 15.6% last month. The decline in inflation is due to falling food prices from the strong 2015 harvest. At the same time, there appears to have been very little pass-through from the RUB sell-off. This is because of the volatility in the RUB exchange rate; it first depreciated up until February 2015 in a probable overshoot, and then appreciated as global oil prices rose, only to sell off again during May-August as global oil prices fell. It appears that the RUB in the range of 65-70 was previously passed-through, states Barclays. 

However, this puts monetary policy on a dangerous threshold. Further RUB depreciation will likely start to push inflation higher. Furthermore, once the 2015 harvest is completed, seasonal downward pressures on food prices will likely dissipate, making the economy more vulnerable to inflation impulses, says Barclays. This implies that a further CBR cut at its September 11 MPC meeting could be ill-advised as it might lead to more RUB depreciation that could boost inflation. The CBR is expected to keep its rate at 11%, however, this depends on the path of oil prices over the next two weeks., adds Barclays.