Russia’s May Inflation Accelerated to Fastest Pace in 21 Months

Russian inflation accelerated for a second month in May, growing at the fastest pace in 21 months and limiting scope for the central bank to cut interest rates.

Consumer prices increased 7.4 percent in May from a year earlier after 7.2 percent in April and 7 percent in March, the Federal Statistics Service in Moscow said today by e-mail. The median forecast of 24 economists surveyed by Bloomberg was 7.3 percent. Prices rose 0.7 percent in the month.

Higher food costs are adding to price pressures as inflation remains more than a percentage point above the top end of the central bank’s 5 percent to 6 percent target. That’s limiting policy makers’ ability to ease monetary conditions and bolster an economy expanding at the weakest pace since a 2009 contraction. Inflation remains a key consideration for policy makers, Sergey Ignatiev, the outgoing Bank Rossii chairman, said at an economic-policy meeting with President Vladimir Putin and senior officials on April 22.

“The cereal crop was bad last year, so prices rose for grains and breads, as well as for imported vegetables and fruits,” Alexey Devyatov, chief economist at UralSib Financial Corp. in Moscow, said by phone before the data release. “The central bank may delay a rate cut.”

The ruble weakened 2 percent against the central bank’s target basket of dollars and euros in May. It traded 0.4 percent lower at 36.3264 as of 3:40 p.m. in Moscow.

Food Costs

Food inflation accelerated to 9.2 percent in May from a year earlier, compared with 8.8 percent in April and 8.3 percent in March, according to the statement. Core inflation, which excludes volatile costs such as energy, was at 0.3 percent in the month, down from 0.4 percent in April.

Price growth remains one of the three main concerns for the majority of Russians alongside housing and utilities and low quality of life, according to a poll published May 14 by the state-run All-Russian Center for the Study of Public Opinion.

Policy makers kept their main rates unchanged for an eighth month on May 15 and reduced by a quarter point the costs of some long-term loans, including those backed by gold and non-marketable assets. The central bank will review borrowing costs at a board meeting June 10, according to a statement published today.

Russia’s economy grew 1.6 percent in the first three months from a year earlier, decelerating for a fifth quarter and missing the medium-term target of 5 percent expansion set by Prime Minister Dmitry Medvedev. Economy Minister Andrei Belousov partially blamed high rates for the economic slowdown, saying in April that without stimulus, he didn’t rule out a risk of recession later this year.

The central bank may cut the refinancing rate in the second quarter by a quarter point to 8 percent, according to a the median forecast of nine economists, surveyed by Bloomberg.

“Inflation probably peaked in May,” Dmitry Polevoy, chief economist for Russia at ING Groep NV, said in an e-mailed response to questions.

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