Secondary effects of January inflation call for maintenance of tight monetary conditions, cautious decisions on rate - CBR analysts

MOSCOW. Feb 3 (Interfax) - Possible secondary effects of higher inflation in January, caused by the increase in VAT and other taxes and fees, call for tight monetary conditions to be maintained and cautious decisions to be made regarding the key rate, the Central Bank of Russia Research and Forecasting Department said in its Talking Trends bulletin.

"The concentrated impact of temporary proinflationary factors at the beginning of the year could maintain inflation expectations, which have been at a high level for more than a year now, for a longer time. Such risks require tight monetary conditions to be maintained and cautious decisions to be made on the key rate," the CBR analysts said in their report.

The inflation situation in January could prolong the persistent "tail end" of inflation and slow down the decrease in price growth rates going forward, the experts said.

"This calls for additional prudence in taking monetary policy decisions, in order to rule out a new round of persistent inflation and prevent the necessity of raising the key rate," the CBR department said.

The slowing of consumer price growth at the end of last year was replaced by significant growth in January. Both of these phenomena were linked primarily to diverse temporary factors, the bulletin says.

"The large increase in prices in January could cause secondary proinflationary effects. They could manifest due to the impact of increased inflation expectations on a preference towards saving and, correspondingly, the growth in consumer demand and companies' pricing policies," the CBR analysts wrote.

Monetary policy must remain tough in order to enable inflation to decrease to 4% in future and stabilize at the target level.