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Russian September Inflation Probably Spiked to 10-Month High

Russia’s inflation probably quickened to the fastest in 10 months in September, exceeding the central bank’s target as droughts pushed up food prices and utility tariffs were raised after a delay.

Consumer prices rose 6.5 percent from a year earlier after a 5.9 percent increase in August, according to the median estimate of 19 economists in a Bloomberg survey. Prices advanced 0.6 percent in the month, according to a second poll of 17 analysts. The Federal Statistics Service will report the data today or tomorrow.

Inflation, driven by droughts from the U.S. to Russia that sparked a record rally in corn and soybean prices, is breaching Bank Rossii’s 5 percent to 6 percent target range after slowing to record lows earlier this year. That forced the central bank to break with policy makers in other major economies by unexpectedly raising interest rates last month.

“It’s going to be about the poor harvest, drought and also an increase in utility tariffs in September that were postponed,” said Juri Kren, an emerging-markets economist at IDEAglobal in London and the top-rated forecaster for Russian annual inflation. The central bank “will probably hike rates this month and then they are likely to stop because of concerns over economic slowdown.”

The ruble is the third-best performer of 25 emerging-market currencies tracked by Bloomberg over the last month, gaining 3.9 percent against the dollar. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble at 31.5951 per dollar in three months.

Inflation Priority

Inflation fell to a post-Soviet low 3.6 percent in April and May after the government pushed back increases in utility tariffs by six months to July 1.

“Ultimately, the most important thing for us is, of course, driving down inflation,” President Vladimir Putin said Oct. 1 at an investment conference in Moscow in response to a question about whether the government was willing to sacrifice short-term economic growth to meet inflation targets.

Agriculture Minister Nikolai Fedorov said Sept. 19 that Russia, the world’s third-largest wheat exporter last season, will harvest 72 million to 73 million tons of grain, compared with a June forecast of about 85 million tons and last year’s crop of 94.2 million tons.

Russia may start selling grain from state stockpiles as early as this month to stem price growth, Deputy Prime Minister Arkady Dvorkovich said Sept. 26.

Greater Risk

Inflation risks remain greater than dangers to economic growth, central bank First Deputy Chairman Alexei Ulyukayev told reporters Oct. 1. The economy grew 4 percent in the second quarter from a year earlier, slowing from 4.9 percent in the previous three months.

Price growth will probably end the year at about 6.4 percent, with policy makers shifting upward their target for 2013 to 5 percent to 6 percent, a half percentage point higher than the previous range, Ulyukayev said.

The central bank will target an inflation rate of 5 percent to 6 percent again next year, a half-point higher than the previous targeted range, according to a draft monetary-policy strategy for the next three years published today on Bank Rossii’s website. Policy makers will target a range of 4 percent to 5 percent in 2014 and 2015, according to the plan.

“Even if inflation in September turns out lower than market expectations, that might not stop the central bank from hiking the rates,” Vladimir Tikhomirov, chief economist at Otkritie Capital, said by phone on Oct. 3. “The central bank is under political pressure to show they are at least trying to control the inflation.”

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