Russian Inflation Rate Was Probably Unchanged in May on Food

Russia’s inflation rate was probably unchanged in May as the impact of last year’s drought on food prices faded.

The annual inflation rate remained at 9.6 percent for a second month, according to the median estimate of 11 economists surveyed by Bloomberg. Prices probably rose 0.5 percent in a month after increasing 0.4 percent in April, the survey showed. The Federal Statistics Service plans to report the figures today or tomorrow.

Food-price growth slowed after the effects of the country’s worst drought in 50 years abated. Inflation is "in order," Bank Rossii Chairman Sergei Ignatiev said on May 26, before the central bank indicated it would leave borrowing costs unchanged for several months.

"The evident slowdown in food-price growth suggests that the shocks from internal agriculture prices are wearing out," VTB Capital economists Alexey Moiseev, Aleksandra Evtifyeva and Dmitri Fedotkin said in an e-mailed note on May 31. The central bank "appears comfortable with inflation."

Food-price growth slowed to 14.1 percent in April from 15.3 percent in the first quarter, according to the statistics office. Prices for products including potatoes and buckwheat began rising last year after unseasonably hot weather destroyed harvests across the country.

The ruble’s gains help limit the growth of consumer prices in monthly terms, Ignatiev has said. The ruble, which has gained a record 9.9 percent against the U.S. dollar this year, closed 0.4 percent higher at 27.81 per dollar on June 3.

Close to Peak

The central bank expects inflation to slow significantly in the second half of 2011 and has a full-year target of between 6 percent and 7 percent. Consumer prices rose 4.6 percent this year through May 23.

"We’re probably very close to the peak," Paul Biszko, an emerging-market strategist at Royal Bank of Canada in Toronto, said June 3. "Policy makers will be looking ahead to that and assuming there’s no sharp acceleration from here, it’s going to give them some room to pause."

The central bank last week raised its overnight deposit rate to 3.5 percent from 3.25 percent, surprising 11 of 20 economists in a Bloomberg survey. It left the key refinancing and overnight repurchase rates unchanged after a quarter-point increase in April.

Borrowing costs may remain unchanged "for the nearest months," with interest rates at the level necessary to tackle inflation and promote economic growth, the bank said. Gross domestic product expanded an annual 4.1 percent between January and March.

Only Serious Risk

Lifting a ban on grain exports introduced in response to last year’s crop shortage is the "only serious, significant risk factor" for inflation, Ignatiev said last week. The resumption of exports on July 1 may push domestic prices higher, Julia Tsepliaeva, head of research at BNP Paribas SA in Moscow, said on May 30.

Increased government spending and wage increases to public workers before parliamentary elections at the end of the year and a presidential vote in early 2012 may also boost inflation, VTB Capital has said.

There is also concern that Russia’s ban on imports of vegetables from the European Union, imposed after an E.coli outbreak, may boost food prices.

"We note the upside risks to inflation associated with the restrictions on vegetable imports which may neutralize some of the favorable deflationary effects that are typically observed in the summer period," Deutsche Bank economist Yaroslav Lissovolik said in an e-mailed note on June 3.

To contact the reporter on this story: Agnes Lovasz in London at

To contact the editor responsible for this story: Balazs Penz at

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