14 Jun 2019 15:44

CBR lowers 2019 inflation forecast to 4.2%-4.7% from 4.7%-5.2%

MOSCOW. June 14 (Interfax) - The Central Bank of Russia has lowered its base forecast for inflation in 2019 to 4.2%-4.7% from 4.7%-5.2%, the CBR said in a press release following the key rate meeting.

"The revised forecast takes into account the completion of the VAT increase pass-through to prices (including the influence of secondary effects) and the preservation of relatively favourable external conditions and moderate dynamics of domestic demand. Moving on, according to the Bank of Russia's forecast, annual inflation will stay close to 4%," the document reads.

"The mid-term inflation dynamics may be affected by fiscal policy parameters, including decisions on the use of the liquid part of the National Wealth Fund in excess of the threshold level set at 7% of GDP," it reads.

This is the CBR's second adjustment of its 2019 inflation forecast since the beginning of the year; on March 22, it lowered the forecast to 4.7%-5.2% from 5.0%-5.5%.

"Annual inflation slowdown is continuing. Annual consumer price growth rate declined in May to 5.1% (from 5.2% in April 2019) and reached an estimated 5.0% as of 10 June. That said, starting in February, seasonally adjusted monthly consumer price growth has remained close to 4% (annualised)," the press release reads.

"Consumer demand trends constrain inflation. Also, temporary disinflationary factors contributed to slowing consumer price growth, among those ruble appreciation since the beginning of the year and the high base effect in respect of the price dynamics of principal types of motor fuel. In May, households' inflation expectations and business price expectations did not materially change and remain elevated," it reads.

"Short-term proinflationary risks have abated compared to March. The effects of the VAT hike have fully materialised. The revision of the interest rate paths by the US Fed and other central banks in advanced economies in 2019 H1 reduces the risks of persistent capital outflows from emerging markets," the document reads.

"That said, significant risks are posed by elevated and unanchored inflation expectations, as well as by several external factors. In particular, the risk of a slowdown in global economic growth still looms caused, among other things, by the further tightening of international trade restrictions. Geopolitical factors might lead to strengthened volatility in global commodity and financial markets, affecting exchange rate and inflation expectations. Supply-side factors in the oil market may amplify volatility of global oil prices," it reads.

"The Bank of Russia leaves mostly unchanged its estimates of risks associated with wage movements, prices of individual food products, and possible changes in consumer behaviour. These risks remain moderate," the press release reads.

The bank is still forecasting 4% inflation in 2020 and 2021.