Russia Inflation Faster in July as Ruble Challenges Central Bank

An increase in utility tariffs helped speed Russian price growth in July, breaking a three-month deceleration as policy makers struggle to balance the tumbling ruble’s impact on inflation against a shrinking economy.

Consumer prices rose 15.6 percent from a year earlier, compared with 15.3 percent in June, the Federal Statistics Service said in a statement on Tuesday. The median estimate of 20 economists surveyed by Bloomberg was 15.8 percent. Prices gained 0.8 percent compared with June.

The Bank of Russia dismissed the July uptick in price growth as temporary when it cut its key rate to 11 percent on July 31. At the same time, it dropped a commitment to continue lowering the cost of borrowing, and earlier in the week halted efforts to buy foreign currency to rebuild its reserves. Following a plunge in the ruble against the dollar, policy makers are trying to combat the country’s first recession in six years by unraveling a December rate increase to 17 percent.

“The ruble has fallen very sharply in the last couple of days, and that poses serious risks to inflation,” Liza Ermolenko, an analyst at London-based Capital Economics Ltd., said by phone before the report. “If the ruble continues to fall at this pace, then, of course, the central bank will struggle to continue cutting interest rates.”

Ruble Risk

The Bank of Russia sees price growth slowing to its 4 percent target in 2017 as the shrinking economy undercuts domestic demand.

Complicating that outlook is the ruble, which slid more than 10 percent against the dollar last month to become the worst-performer among 24 emerging-market currencies tracked by Bloomberg. The ruble lost about half of its value in 2014, triggering Russia’s worst currency crisis since 1998.

“We expect the deceleration in inflation to continue over the second half of 2015,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail before the data release. Still, “there are risks to extra spikes in price growth if the ruble sees new sharp devaluation.”

Inflation may slow to 12.5 percent by the end of 2015 and to 7.8 percent by end-2016, according to a report released by the International Monetary Fund on Monday.

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