Russian March Inflation Exceeds Estimates as Controls Lifted

Russian consumer prices rose the most in a year in March as the government loosens the reins that brought the annual inflation rate to a record low.

Prices rose 0.6 percent in the month, exceeding the 0.5 percent median estimate in a Bloomberg survey of 15 economists. Inflation was unchanged in March at 3.7 percent from a year earlier, the slowest rate since the Soviet Union collapsed two decades ago, matching estimates in a separate survey.

Consumer prices are bottoming out after Prime Minister and President-Elect Vladimir Putin capped fuel costs and delayed utility-price increases from January to July in the run-up to the March 4 presidential ballot. Inflation may accelerate in the second half as the government lifts restrictions and capital inflows resume as early as May, Alexei Ulyukayev, a Bank Rossii first deputy chairman, said yesterday.

“Inflation is likely to start picking up already in the second half on the back of a hike in natural-monopolies tariffs,” Julia Tsepliaeva, head of research at BNP Paribas in Moscow, said by e-mail. “Monetary easing is unlikely to be aggressive in 2012.”

The benchmark Micex Index of 30 stocks tumbled 2.6 percent to 1,509.17 at 5:21 p.m. in Moscow. The ruble lost 1 percent to 29.4496 per dollar, weakening for the first time in four days.

Core inflation, which excludes volatile costs such as energy, was unchanged at 0.5 percent on a monthly basis, bringing the full-year increase to 1.4 percent.

‘Temporary Slowdown’

The central bank, which has refrained from cutting borrowing costs and held the refinancing rate at 8 percent for a third month in March, has noted the “temporary nature” of the price slowdown. The world’s largest energy exporter may see a “substantial” increase in consumer-price growth after the government increases utility tariffs, Deputy Economy Minister Andrei Klepach said on March 27, according to RIA Novosti.

Russia may post a “double surplus” in its current and capital accounts this year, fanning inflation and posing a policy dilemma similar to what Russia faced in 2006 and 2007, Ulyukayev said.

‘Huge Liquidity’

“Huge liquidity entering the domestic market will create serious inflation pressures,” Ulyukayev said.

The central bank plans to discuss interest rates on April 9 or April 10. Bank Rossii Chairman Sergey Ignatiev wants to trim the inflation rate to about 5 percent to 6 percent in 2012 from 6.1 percent last year. Policy makers want to bring price growth as low as 4 percent by 2014, according to a three-year policy plan published in November.

Prices and poverty are seen as the biggest threats facing the country this year, according to a January poll by the independent Levada Center.

“The central bank is likely to stay on hold as the weekly inflation accelerated slightly at the end of the month and industrial production growth rebounded,” Aleksandra Evtifyeva, an economist at VTB Capital in Moscow said by e-mail.

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