Russian Inflation Ends Four-Month Slowdown as Currency Weakens

Russia’s inflation rate was unchanged in October, missing economist forecasts for a fifth straight decline, after the ruble depreciated and the seasonal effect from falling food prices faded.

Consumer prices rose 7.2 percent in October from a year earlier, the same as in September, the Federal Statistics Service in Moscow said today in an e-mailed statement. Inflation from a month earlier was 0.5 percent. Economists predicted rates of 7 percent and 0.3 percent, according to two Bloomberg surveys.

The central bank, which is trying to hold inflation to a two-decade low of 7 percent, left interest rates unchanged last month as a surge in consumer spending buoyed the economy and reduced the need for looser monetary policy. Inflation from a year earlier fell to 6.9 percent as of Oct. 24, helped by falling food prices, an effect that is now “nearly exhausted,” the central bank said in an Oct. 28 statement.

“The higher scenario is very straightforward if you think that the favorable food-price effects start to wane a bit and you start seeing some inflationary impact from the weaker ruble,” Ivan Tchakarov, chief economist for Renaissance Capital in Moscow, said today by e-mail before the release.

‘Food Shock’

Rate increases earlier this year were because of a “food shock” after a drought ravaged last year’s harvest and accelerating core inflation pushed the headline number higher, Bank Rossii Deputy Chairman Sergey Shvetsov said yesterday in Moscow. Action taken now by the regulator will only influence inflation next year even as it affects economic growth in 2011, he said.

“We’re evaluating the extent to which it’s already included in inflation,” Shvetsov said, referring to a 9.2 percent decline in the ruble against the U.S. dollar in the last three months. “So far, there’s no clarity on that, so I personally don’t see any reason to tighten policy.”

The ruble ended October 7.1 percent weaker from July against the central bank’s target basket of dollars and euros, even after rallying 4.6 percent in the month, data compiled by Bloomberg show. A weaker ruble may spur inflation by making imported goods more expensive.

“Price growth normally picks up about mid-autumn -- this is a seasonal phenomenon,” Tatiana Orlova, an economist covering Russia and the former Soviet Union at Nomura International Plc in London, said yesterday by e-mail. “In particular, fruit and vegetable prices start growing.”

Fuel and some food items pushed consumer prices up 0.2 percent in the week ending Oct. 31, bringing inflation in the year to date to 5.1 percent, compared with 6.8 percent in the same period a year ago, the statistics service said yesterday.

The service revised that year-to-date figure today, saying consumer prices rose a cumulative 5.2 percent through October. Core inflation, which strips out volatile food and fuel costs, rose 0.5 percent from a month earlier, matching the median estimate of economists in a third survey.

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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