Russian CPI slows in April, but no further relief seen till year-end

The April CPI result of 5.5% year-on-year is in line with our forecast (consensus was split between 5.5% and 5.6%) and points at a deceleration from the March peak of 5.8% YoY, however, we are not in a rush to take the numbers as a sign of sustainable relief.

• Higher base effect (in April 2020 the YoY CPI rate jumped 0.6 percentage points vs. March reacting to the pandemic/lockdown shock) is the sole factor of this slowdown.
• Food segment was the only one to show deceleration (Figure 1), and even within it only volatile fruits and vegetables, as well as cereals and beans showed a noticeable slowdown, while the remaining major food groups, such as bread, meat, fish, dairy, and sugar kept showing price growth rates close to that of the previous month.
• Non-food products and services failed to take advantage of the higher base effect and kept posting higher annual growth rates (Figure 1), and their contribution to the overall CPI growth increased from 3.0 ppt in March to 3.1 ppt in April (Figure 2), according to our estimates. The key drivers in this acceleration were gasoline (which is now up 5.9% YoY, higher than the overall CPI growth, despite the government's measures), construction materials, reflecting housing and home improvement boom, and various services including medicine, local recreation, and insurance.

For the coming months we expect inflationary pressure to remain elevated for several reasons.

• First, the global agriculture prices (Figure 3) remain a risk factor, with wheat, sugar and sunflower oil back in high double- digit growth on a combination of strong demand and supply concerns. Should the global price growth continue, it should prevent local food prices from showing disinflation.
• Second, the elevated PPI and corporate inflationary expectations (Figure 4) are another risk factor for the local consumer prices, especially given that last year's corporate profits were down 24% YoY according to Russian accounting standards, suggesting limited room for the producers to absorb input price growth in all the key consumer segments.
• Third, the local CPI does not yet fully reflect services in the Covid-affected areas, such as foreign tourism, given the still persistent restrictions for travel to Russians' most popular resort destinationas such as Turkey and Egypt (the latter is expected to be reopened for charter flights in May). Potential reopening of those may somewhat ease the local consumption pressure on prices but is unlikely to ease the overall inflationary risks for the consumers.
• Finally, the elevated CPI expectations by the households (Figure 5), propelled by actual price growth in socially-sensitive items as well as high government and media attention, are also a risk factor, which may prevent disinflation in the coming months.