Russian Inflation Speeds Up To 6.9% in March With Depreciating Ruble

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russia's inflation accelerated to 6.9% in March from the same month last year, and up from 6.2% in February, broadly in line with expectations. According to figures from the Federal Statistics Service, consumer prices rose 1% in March after rising 0.7% in the preceding month.

The inflation was largely driven by higher food prices. Food price inflation rose to 8.4% from March, 2013. Non-food goods and services inflation in March also picked up moderately to 4.6% and 8.3%, respectively, from March 2013. Also, the core inflation rate jumped 0.5 points to 6% from March 2013, which was a two-year high.

"The figures confirmed that inflation is clearly on the upward trend after bottoming out at 6.1% year on year in January. We think that the inflation will rise further due to the lagged effect of ruble depreciation which will more than offset lower tariff hikes this year," said Daniel Hewitt, a London-based economist at Barclays Capital. "We think that inflation will likely be close to 7% at end-2014, putting the 5% end-2014 inflation target clearly out of reach," he said.

The currency has come under intense pressure this year and was off 10% at the peak, following the rate hike in early March and the recent easing of tensions between Russia and the West over the Ukraine. The ruble had already been under pressure, having sold off by 8% in 2013. The Central Bank of Russia (CBR) sold $27 billion of its reserves in 2013 to stabilize the ruble, and has already sold an additional $41 billion in this year.

"We expect the consumer inflation to remain near 7% in 2Q14 before gradually subsiding over to 5.5-6% in December 2014 on lower utilities tariffs hikes, slowing demand-side pressure and weakening pass-through effects from the ruble," said Dimitri Polevoy, a Moscow-based economist with ING Bank. "The Central Bank of Russia likely won't touch its key rate in 2014, we think, and the policy easing may come only in early 2015," he said.

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