Annual inflation in Russia to start declining in May due to lower current price growth and base effect - Central Bank analysts

MOSCOW. April 15 (Interfax) - Barring any new major pro-inflationary shocks, annual inflation in Russia will begin to decline in May, both due to a further gradual slowdown in current price growth and to lower base effect as high monthly inflation in May-December 2024 are factored out, the Central Bank of Russia's Research and Forecasting Department said in its latest Talking Trends bulletin.

Consumer price growth continued to slow in March, driven by the strengthening ruble and declining demand for a number of non-food products, the analysts said. "As lending grew slower, expansion in monetary aggregates decelerated, which will add to the sustainability of disinflation processes in the future. Specifically, confidence strengthened that annual inflation is set to decline consistently in the coming quarters," they said.

Although price growth has continued to slow, this occurred in part on the back of a strengthening of the ruble, and the sustainability of this trend needs further evidence. "The sustainability of the strengthening that has occurred is still unclear due to the dynamics of prices for Russian export goods amid turbulence in the global economy and high geopolitical uncertainty," the analysts said.

They also mentioned the constraining effect of monetary policy on consumer price growth. "To return inflation to 4% from the current high values, a long period of tight monetary conditions will be needed. This is especially valid given the high and unanchored inflation expectations of households and businesses. The Bank of Russia will judge based on incoming macroeconomic data whether the rate of inflation has fallen sufficiently for it to return to 4% in 2026 in keeping with the forecast path," the experts write.

Inflationary pressure eased significantly in Q1 2025 compared to the end of 2024: current price growth in annual terms, seasonally adjusted, slowed to 8.3% from 12.9% in Q4 2024. However, this remains elevated, the Central Bank analysts said.

"The deceleration of price growth, adjusted for non-monetary components, is still weak and unstable. The strengthening of the ruble had a significant disinflationary effect and to a lesser extent, the cooling of demand, in Q1. By our estimates, adjusted for the influence of the exchange rate, price growth in March and in Q1 as a whole would have been close to a seasonally adjusted annual rate of 10%. A cooling of demand is being seen in certain segments of the consumer market, mainly in durable goods," the analysts said.