Russia: CPI higher than consensus in August, supporting unchanged key rate in September

Russian CPI showed no monthly deflation in August despite seasonality, and the annual CPI rate picked up by another 0.2 percentage points (pp) to 3.6% year on year (Figure 1). This result is in line with our expectations, however we were on the hawkish side of the consensus range, with most of the market participants expecting 3.4-3.5% YoY. We take the numbers as supportive of our initial take, that the reasons for the acceleration in the CPI, which is likely to take place in 2H20 and in the beginning of 2021, go beyond the statistical base effect. We have the following list of suspects:

• Pick-up in global agriculture price growth on solid demand and damaged crops is likely putting upward pressure on the local food CPI in Russia, as it was historically (Figure 2). We remind, that around 10 pp of global wheat price growth translates into around 1 pp of local food CPI growth and 0.4 pp of overall inflation.
• It remains unclear if the protests and strikes at Belarus' companies since August have any material impact on Russian CPI. According to our estimates, Belarus accounts for around 1.6% of the Russian consumer basket, with elevated importance for dairy, textiles, fertilizers, and furniture. So far, those items of the Russian CPI have shown no noticeable uptick in prices.
• Ruble's depreciation to major currencies since June, especially by 9% to EUR in July-August (as the EU accounts for around 36% of Russia's imports), could have contributed to the upward pressure in import-heavy non-food items, such as consumer electronics and household chemicals, which are already showing signs of acceleration of CPI in July-August.
• Lack of obvious signs of disinflationary effects of demand that seems to be recovering faster than expected, as the consumer trend is actively rebounding (Figure 3) amid resumed retail lending, active fiscal support, persistent real salary growth and restrained foreign travel.