13 Sep 2017 17:11

Russia had zero inflation in week before Central Bank rate meeting, annual inflation still 3.2%

MOSCOW. Sept 13 (Interfax) - Russian consumer prices were unchanged in the week September 5-11, the Federal State Statistics Service (Rosstat) said.

Russia had 0.1% deflation the previous week and 0.2% deflation the week before that. Prices were unchanged for the week August 15-21 and fell 0.1% for each of the three weeks prior to that, the first deflation since early August 2016.

Consumer prices fell 0.1% in the first 11 days of September but rose 1.7% between January 1 and September 11.

Deflation is not uncommon for the month of August, when fruit and vegetable prices fall. Russia had 0.5% deflation for the month of August, following 0.1% inflation for July. The August deflation was higher than the 0.4% that analysts predicted in a consensus forecast for Interfax and was the highest figure in recent Russian history. The previous high was 0.4% in August 2003. The Central Bank expected deflation close to zero for August and the Economic Development Ministry predicted 0.3%-0.5% deflation for the month.

Average daily deflation was 0.008% since the beginning of September, indicating that prices were still falling in the second week of September, but only slightly. Average daily deflation was 0.015% in the first week of the month.

There was zero price growth in the equivalent period of September last year. On this basis and given the annualized inflation rate of 3.29% at the end of August, annualized inflation as of September 11 remained well below the 4% target at 3.2%, unchanged from September 4, however it has been leaning towards 3.1% in the days running up to the Central Bank's next rate-setting meeting on September 15.

Fruit and vegetables prices fell 2.0% on average last week, compared with 2.7% the week before, with potatoes, cabbage, onion and carrots falling 3.0%-5.6% in price, but cucumbers and potatoes rising 0.5%-


Granulated sugar went down 2.0%, buckwheat - 1.0% and rice - 0.2%, while kolbasa sausage, frankfurters, pasta, vermicelli pasta and biscuits went up 0.1%-0.2%.

Gasoline was practically unchanged in price while diesel fuel went up 0.1%.

The Central Bank of Russia's board of directors will consider cutting the key rate by 25 or 50 basis points at their meeting on September 15, Central Bank monetary policy department head Igor Dmitriev told Interfax.

"I think at the next few meetings, the discussion will range from leaving the rate unchanged to cutting it by 50 bps. At the September meeting, most likely a choice between a rate cut of 25 bps and 50 bps will be examined. Here again, fruit and vegetable price dynamics will be important, what kind of new data we receive from market participants, how the situation develops overall. Completely new information might appear," Dmitriev said.

The wave of deflation that has hit Russia amid a rapid decline in food prices is coming to an end, with inflation of 0%-0.2% possible in September, Russian Economic Development Minister Maxim Oreshkin told journalists on the sidelines of the Eastern Economic Forum last week. He said this would mean that annual inflation would decline to 3.1%-3.3% in September.

"Yes, inflation could be lower than the previous September, but the wave of deflation which began at the end of July is coming to an end. Vegetables have already fallen enough, and the decline itself was very borderline. Therefore falling prices for vegetables will come to an end and inflation should return to positive territory," the minister said.

"Inflation was 0.2% last September and this year I think it will be around 0%-0.2%, which corresponds to 3.1%-3.3% [in annual terms]," Oreshkin said, giving his own forecast for the month.

The Central Bank of Russia will adjust its 2017 inflation trajectory on September 15 and could revise its forecast to less than 4%, the Central Bank's Dmitriev said.

"For inflation, the trajectory will be adjusted in view of the new point in actual values. In our view, inflation will approach 4% at the end of the year, and it will probably approach that from below. We're adjusting our forecast right now and we'll unveil it on September 15 [at the Central Bank board's reference meeting on monetary policy]. It'll probably be 4% or less, maybe 3.8%," Dmitriev said.

The Central Bank held the key rate at 9 per annum, saying there was room for this to come down in the second half of the year.