Russian October Inflation Rate Unexpectedly Falls to 6.5%

Russia’s price growth unexpectedly eased in October, slowing for the first time in six months and giving policy makers room to sidestep interest-rate increases.

The inflation rate fell to 6.5 percent in October from a year earlier, compared with 6.6 percent in September, the Federal Statistics Service in Moscow said today in an e-mailed statement. Prices grew 0.5 percent in the month. Economists projected a 6.7 percent annual rate and a 0.6 percent advance in the month, according to the median estimates of two Bloomberg surveys.

Russia, the biggest emerging economy to raise interest rates this year, is trying to keep a lid on consumer prices after droughts in the U.S. and locally drove up food costs. The government’s top priority is fighting inflation, even at the expense of short-term growth, President Vladimir Putin said last month at an investment conference in Moscow.

“Food inflation eased off a little in October, so it seems that has been partly driving the slowdown in the headline rate,” said Neil Shearing, chief emerging-markets economist at Capital Economics Ltd. in London, who correctly predicted the rate. While inflation may near 7 percent by year-end, policy makers are likely to hold rates “for the foreseeable future” as the economy slows, he said.

The ruble is the third-worst performer among more than 20 emerging-market currencies tracked by Bloomberg over the last six months, losing 5.4 percent against the dollar. It was little changed at 31.4800 per dollar as of 4:36 p.m. in Moscow. Non- deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble at 31.9575 per dollar in three months.

Unexpected Increase

Policy makers in September unexpectedly raised interest rates as concerns over inflation outweighed the dangers of a slowing economy, with price growth surging past the central bank’s target of 5 percent to 6 percent this year. Dry weather damaged crops in Russia, the third-biggest wheat exporter last season, cutting global stockpiles and helping boost food costs 7.7 percent in July-September.

Economists project that the central bank, which kept the refinancing rate at 8.25 percent in October, will maintain the rate unchanged through year-end. Bank Rossii will next review interest rates on Nov. 9.

Harmful Increase

The increase in borrowing costs in September harmed the country’s industry and investment without curtailing inflation, Deputy Economy Minister Andrei Klepach said Oct. 19. The government isn’t planning to raise its forecast for annual price growth to reach 7 percent in 2012, Economy Minister Andrei Belousov said Oct. 31.

Inflation slowed to a post-Soviet low of 3.6 percent in April and May after the government pushed back increases in utility tariffs by six months to July 1. Most Russians named rising prices as their biggest concern, topping corruption, poverty and drug abuse in an August poll published by the Moscow-based Levada Center.

Russian farmers reaped 72.2 million tons of grain before drying and cleaning as of Oct. 26, down from about 95.4 million tons a year earlier. In July, world food prices rose the most in a month since 2009.

“We generally see relief in food price pressure as temporary and expect a new round of food inflation soon,” Julia Tsepliaeva, head of research at BNP Paribas SA in Moscow, said in a note to clients after the report. An increase in rates is now “less urgent,” so Bank Rossii may hold off until December, she said.

Produce, Services

Produce prices dropped 2.2 percent in October from a month earlier, while grains and beans advanced 0.7 percent from the previous month, the statistics service said today. Services costs rose 0.1 percent on a monthly basis, down from a 1 percent increase in September.

“Slowing consumer-price growth is primarily linked to the minimal change in prices for services,” said Dmitry Kharlampiev, director for macroeconomic research at OAO Petrocommerce Bank in St. Petersburg, who also correctly forecast the surprise slowdown. “I don’t expect a change in policy rates at the regulator’s next meeting because inflation, which the central bank has been so focused on lately, isn’t accelerating.”

To contact the reporters on this story: Scott Rose in Moscow at rrose10@bloomberg.net; Olga Tanas in Moscow at otanas@bloomberg.net

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

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