Russia's inflation moving closer to the target

One of the main potential benefits of economic weakness should be the persistent weak inflationary pressures in Russia. So with the massive base effect from the significant RUB devaluation from 4Q14-1Q15 due to pass in 1Q16, inflation is expected to fall to the mid single digits, implied by the underlying monetary trends. 

In the absence of any new major inflationary shocks, the disinflation could be even more pronounced. In particular, the 2016 budget suggests that the Russian consumer is set to suffer from the second consecutive wage freeze in the budget sectors and limited pension indexations. Additional downward pressure on inflation should also come from the likely weaker indexations of the regulated tariffs in 2016. 

Overall, inflation is expected to lose up to 7-8pp from the headline between November 2015 and March 2016 and to slow to about 6.4% yoy by 2015. Also, the disinflation story will remain in place in 2017 as well, which should push inflation close to the ambitious 4% CBR target by the end of 2017.