Russia Raises 2014 Inflation Goal on Government Tariff Plan

Russia’s central bank increased its target for consumer-price growth by half a point for 2014, saying a government plan to allow partial increases in fixed costs for consumers necessitated the revision.

Bank Rossii will target an inflation rate of 5 percent next year, higher than the 4.5 percent level sought when the government was planning to halt all tariff increases for households and businesses in 2014, the Moscow-based regulator said in a website statement today. The bank maintained its targets for 2015 and 2016 at 4.5 percent and 4 percent, respectively, according to the statement.

“Given the planned increase in tariffs for households, attaining the 2014 inflation target of 4.5 percent would have required tighter monetary policy in the short term than initially planned, with the ensuing risks for economic growth,” the central bank said.

Elvira Nabiullina, a former economy minister who became central bank chairman in June, wants the government to share the burden of taming price growth as the monetary authority shifts to targeting inflation in 2015. Nabiullina threatened to tighten policy if tariffs were raised for households, which she said Sept. 19 would add 0.5 percentage point to 2014 inflation.

Reaching the earlier target under the new tariff plan would require tightening monetary policy, raising risks for growth, the central bank said.

Better Plan

“This sounds actually better for the economy as a whole, because the tariffs need to approach market levels to improve the efficiency in the economy,” Sanna Kurronen, an economist at Danske Bank A/S (DANSKE) in Helsinki, said by e-mail. “Five percent is still clearly lower than this year, and as inflation is coming down anyway I think this is a good time to hike tariffs.”

Consumer prices advanced 6.5 percent from a year earlier in August, leaving the inflation rate above this year’s target of 5 percent to 6 percent for a 12th month. The central bank held its main lending rates this month, opting against cheaper borrowing costs to stimulate the economy.

Economists projected the central bank would cut its key one-week rate, at which it offers auctions to provide or absorb liquidity, by a half-point in the fourth quarter to 5 percent, according to the median estimate of 18 economists in a Bloomberg survey. The single policy rate, introduced by the central bank at a Sept. 13 meeting, was set at 5.5 percent.

Investor Expectations

The cost for large Moscow banks to borrow from one another for three months may tumble 19 basis points, or 0.19 percentage point, over the next three months, according to forward-rate agreements tracked by Bloomberg. That’s down from as much as 56 basis points on Aug. 8.

Those prices will increase at the rate of the previous year’s inflation, scaled down by a coefficient of 0.7 percent, according to the statement. The central bank plans to publish a draft of its monetary-policy plan for the next three years on Sept. 30, the central bank said.

Concerns among some investors that the central bank may become less independent under Nabiullina “have clearly not materialized,” Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, said in a note to clients.

“We now see policy rates flat in the second half and likely in the first half of 2014,” he said. “Any skew to an easing bias may appear only under downside risks to growth.”

To contact the reporters on this story: Scott Rose in Moscow at; Ott Ummelas in Moscow at

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

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