Russia's inflation begins its descent

Russia inflation decelerated to 15.0% y/y in November, from 15.6% y/y the previous month. This was slightly less than the forecast and the consensus. While inflation has declined, the monthly level at 0.8% m/m is still somewhat high, equivalent to 9% inflation annualised. This does not bring inflation to within a reasonable range of the target, as the Bank of Russia (CBR) noted in a publication today. While food inflation has been falling, other goods prices are accelerating.

The rate of decline will pick up considerably as the base effect doubles in December and when we expect headline inflation to drop to 13%. The base effects triple in January, and economists expect inflation to decline to about 10% y/y. An unknown factor that could hold back some of the declines in inflation is oil price and its effect on the RUB. In addition, the recent sanctions on fruit and vegetable imports from Turkey will push food prices higher.

"We expect the CBR to eventually begin cutting its key rate. If weekly inflation indicates declaration towards an annualised 6% or 7%, the CBR may begin cutting its key rate in January. If there are any glitches that push inflation higher, the CBR will probably wait until its March MPC meeting", says Barclays.