Russian Inflation Grew for First Time in 3 Months on Fuel

Russian inflation accelerated in April for the first time in three months to match the fastest pace since October 2009 as fuel prices surged following government efforts to contain them.

The inflation rate climbed to 9.6 percent from 9.5 percent in March, the Moscow-based Federal Statistics Service said today in an e-mailed statement. Consumer prices rose 0.4 percent from a month earlier, compared with 0.6 percent in March. The median estimate of 12 economists in a Bloomberg survey was for an annual rate of 9.7 and 0.5 percent on the month.

The central bank unexpectedly raised its main interest rates last week for a second time this year to rein in price growth, saying monetary factors may now sustain inflation originally sparked by shocks like last year’s drought. Prime Minister Vladimir Putin’s government raised export duties on gasoline last week to hold down prices and fight fuel shortages.

“If you look at non-food prices, particularly for gasoline and other fuel, there was a strong increase,” Julia Tsepliaeva, head of research at BNP Paribas in Moscow, said by phone. “I’m afraid the attempts to prevent price growth that were made in the first quarter may lead to faster increases in the second quarter.”

Gasoline Prices

Gasoline prices jumped 0.9 percent in April from a month earlier, up from a 0.8 percent monthly decline in March. Food prices grew 0.4 percent in April from the previous month, compared with a 0.9 percent rise in March. Inflation in the year to date was 4.3 percent, compared with 3.5 percent in the first four months of 2010.

“The first wave of external shocks may have passed, but I don’t think the process of rising world food prices has ended,” Tsepliaeva said. “A second wave is gathering. Russian monetary authorities are hoping to survive the second wave through a good harvest this year.”

Core inflation, which strips out volatile components, rose 0.5 percent from a month earlier, less than the median estimate of 0.6 percent in a Bloomberg survey. That brought core inflation to 3 percent for the year, compared with 1.7 percent for the first four months of 2010.

‘Monetary Factors’

Bank Rossii cited the growing “role of monetary factors” in sustaining inflation pressures when it raised the benchmark refinancing rate to 8.25 percent from 8 percent on April 29.

Companies including X5 Retail Group NV (FIVE), Russia’s largest grocery operator, have benefited from strengthening consumer demand and a 2.6 percent rise in retail lending in the first quarter compared with the previous three months. Retail sales increased 4.8 percent last month from a year earlier.

The ruble reached its strongest level since December 2008 against the central bank’s target basket and closed at a 29- month high versus the dollar. It gained 0.3 percent to 33.1932 against the dollar-euro basket by the 5 p.m. close of trading in Moscow, the strongest since Dec. 21, 2008, according to data compiled by Bloomberg. The currency advanced 0.7 percent to 27.1699 per dollar, the most since Nov. 10, 2008, based on closing prices.

Fighting inflation is a bigger priority than containing ruble gains, Finance Minister Alexei Kudrin said April 25. The world’s biggest energy supplier “needs low inflation” to make financing cheaper for companies and home buyers, Putin said the same day, predicting the rate won’t exceed 7.5 percent this year, the slowest on record.

The government is seeking to prevent inflation from sapping purchasing power and consumer confidence less than a year before parliamentary and presidential elections. Russians see inflation, the fastest among the so-called BRIC countries, as the country’s biggest challenge facing the country, according to a poll by the state-run VTsIOM research center.

“The authorities declared that inflation would be low, and in a pre-election year they need to keep their promise,” Tsepliaeva said. “It can be slowed substantially if the ruble continues to strengthen as quickly as it is now or if monetary measures are used.”

To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net.

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net.

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