5 May 2010 17:39

Russian inflation slows to 0.3% in April, 6% in annual terms

MOSCOW. May 5 (Interfax) - Russian inflation continued to slow in both monthly and annual terms in April as the economy continued to cool down following its recent years of rapid growth, but analysts warned that price growth might accelerate later this year when the stagnation comes to an end.

The Federal State Statistics Service (Rosstat) Wednesday said inflation slowed to 0.3% in April from 0.6% in March 2010 and 0.7% in April last year.

Consumer prices grew 3.5% since the start of 2010, compared with 6.2% growth in the same period of last year. Inflation in annual terms (April to April) slowed to a record low of 6.0%, from 6.5% in March 2010 and 8.8% in December 2009.

Inflation for April was lower than the 0.4% that analysts predicted in a consensus forecast for Interfax at the end of last month.

The core inflation index, which excludes short-term irregular price changes caused by various factors of an administrative, once-off and seasonal nature, was 100.2% in April 2010 and 101.7% in the four months, compared with 100.8% and 105.2%, respectively, in the same periods of last year.

Prices in April this year rose 0.3% for goods (rose 0.7% in March), including 0.3% for foodstuffs (1.0%) and 0.3% also for nonfood goods (0.3%). Services went up 0.2% (0.4%).

April saw price drops of 5.5% for granulated sugar, 0.5% for pasta products, 0.3% for fish and seafood and 0.1% for meat and poultry.

Fruit and vegetable prices continued to outgrow food prices in general, averaging up 1.1% in April, although this growth had slowed considerably from 4.2% in March. The biggest price increases in this category were 4.7%-10.2% on fresh cabbage, carrots and onion, while lemons, oranges, grapes, pears and bananas fell 1.9%-5.3% in price.

The consumer basket of staple foods rose 0.4% in April and 6.6% in the four months to 2,282.6 rubles per person per month. The basket went up 1.4% in March.

The basket was most expensive again in Russia's Far Eastern regions of Chukotka (6,654 rubles), Magadan (4,047 rubles), Kamchatka (3,818.4 rubles), Sakhalin (3,616.2 rubles) and Yakutia (3,488 rubles).

It was least expensive in the Saratov region (1,869.7 rubles), Tatarstan (1,872.8 rubles), Tambov region (1,884.8 rubles) Orenburg region (1,907.6 rubles) and Ulyanovsk region (1,930.1 rubles).

The basket rose 0.9% in April and 8.1% in the four months to 2,634.8 rubles in the City of Moscow and 0.8% (7.7%) to 2,526.8 rubles in St Petersburg.

Medicines in Russia fell 1.1% in price in April.

Gasoline went up 1.1%, compared with growth of 0.6% in March. Gasoline, which fell in price at the start of the year, went up just 0.5% in the four months. It rose 19.8% in the 12 months to the end of April.

Housing and utility charges continued to outpace the overall rate of inflation, up 11.7% in the four months. These charges rose 0.2% in April, up from 0.1% in March. The biggest April rises were 7.8% for gas mains supply.

The Central Bank said when it lowered its refinancing rate to 8% p.a. last week that it did not rule out an acceleration of inflation in the second half of 2010, to a certain extent because inflation was so low in the corresponding period of last year. Analysts lowered their consensus on inflation in 2010 to 7.7% from 7.9%. They say inflation could continue to slow in the next few months, but is expected to accelerate in H2 2010, because it was so low in the corresponding period of 2009, and because incomes and the monetary base are expected to rise. The Russian Economic Development Ministry has also lowered its FY2010 inflation forecast, to 6.0%-7.0% from 6.5%-7.5%.

Analysts told Interfax after the April inflation figures were released that they thought the "crisis effect" in the form of a slow recovery in consumer demand, and the stronger ruble was behind the slowdown in inflation.

"Consumer demand is still under pressure and is demonstrating only slight growth. The ruble continues to strengthen, not counting the last few days, and this is bringing the cost of imports down. The euro's losses in the last few days will also play a part in bringing inflation down, as around 40% of our foreign trade is with eurozone countries," said Uralsib's chief economist, Vladimir Tikhomirov. The analyst said these factors would keep inflation at 0.3%-0.4% in May.

Tikhomirov said he thought annual inflation might stay low in June also, but would rise after that. "To expect that inflation will be low [like it was in the second half of 2009] would be to expect the economy will continue to stagnate, but I'm expecting it to revive, particularly where lending is concerned," he said, adding that inflation for the year could be 8%-8.5%.

Troika Dialog's Anton Struchenevsky said high inflation in recent years had been caused by "overheating," by considerable growth in money supply, personal incomes and budget spending. "The economy is now cooling off, incomes will grow to a lesser extent, but the monetary base will grow 20%-25% this year due to the low base in 2009," he said.

But inflation might not necessarily speed up in H2 2010, Struchenevsky said. The Central Bank still has the opportunity to lower rates, above all on deposits, to encourage banks to pump their liquidity into the economy, and inflation could be 5.5%-6.5% for the year.