Russian inflation rate likely to decelerate

Russia inflation declined slightly in September to 15.7% y/y, this was slightly above expectation. The inflation figure reversed its direction after two months of increases. The RUB and inflation pass-through have been the driving factors behind inflation fluctuations. Between May to mid-September the RUB depreciated by nearly 40%. For the past month, it has stabilised and even slightly appreciated. All the while, the RUB has followed global oil prices. The RUB depreciation led to inflation pass-through, pushing inflation higher for several months. With the recent RUB appreciation, the pass-through is starting to dissipate.

The other factor behind the deceleration in inflation is base effects that are becoming more favourable. The main downward impetus on inflation came from food inflation that fell for the sixth straight month to 17.4% y/y. This reflects base effects from relatively high food inflation last year resulting from Russia sanctions banning food imports from countries that had placed economic and financial sanctions on Russia. Services inflation also fell moderately to 13.8% y/y. However, inflation on other (non-food) goods accelerated to 15.2% y/y, probably reflecting somewhat delayed inflation pass-through.

"The inflation has started a downward cycle that will continue, benefiting from strengthening base effects. We expect inflation to fall to 12.5% at end-2015 and to 7% by mid-2016. This will facilitate resumption of Bank of Russia rate cuts when the trend becomes clearer and sustained as the RUB continues to follow oil price trends", states Barclays.