Russian CPI structure supports central bank’s hawkish bias

In August, Russian CPI increased 0.16% month-on-month, lifting inflation from 6.5% year-on-year in July to 6.7% YoY.

This is only marginally higher than our expectations of 6.6% and within the consensus range of 6.6-6.8%. However, core CPI spiked unexpectedly by 0.3 percentage points to 7.1% YoY, and the structure of CPI growth continued to deteriorate, which is a cause for concern.

• Both food and non-food CPI growth accelerated in August (Figure 1), increasing their contributions to overall inflation despite the higher base effect of the previous year. The scope of seasonal monthly deflation in fruits and vegetables in the food segment was not enough to offset the growing price pressure in other items. More importantly, in the non-food segment, we were negatively surprised by the spike in gasoline price growth and the continued increase in most construction materials, consumer appliances, and pharmaceuticals. A pick-up in services inflation was avoided mainly thanks to a higher base effect, while risks related to travel, healthcare and renovation pressed on.
• Looking into the next couple of months, the promising developments in moderation of global food price growth for most items (Figure 2), rouble stability, and the moderation in the housing market boom may help contain local inflation. At the same time, the risks of a further rise in local CPI is still high due to the end of the electoral cycle with the mid-September Parliamentary elections, the expected 0.2-0.3 pp inflationary effect of the one-off social payments of August-September, and the global context of global cost input inflation.
• CPI for the first week of September totalled 0.07% week-on-week, suggesting no relief so far. In the last 15 years, there were only three cases when September's monthly price growth was lower than August's - in 2006 and crisis years 2009 and 2020. Assuming a return to regular seasonality, CPI can jump to 7.1% YoY in September.