• Price growth decelelated in March to slowest since April 2014
  • Impact of ruble's crash is wearing off as consumer demand weak

Russian inflation decelerated to the slowest pace in almost two years as withering consumer demand continues to weigh on prices and stronger oil propels a rally in the ruble.

Consumer-price growth eased to 7.3 percent from a year earlier in March, compared with 8.1 percent in February, the Federal Statistics Service in Moscow said in a statement Tuesday. That was slower than all but two forecasts in a Bloomberg survey of 17 economists, whose median estimate was 7.5 percent. Prices increased 0.5 percent from the previous month.

The surprise letup shows Russia is shaking off the ruble’s drop to a record earlier this year as the collapse in domestic demand pulls prices lower. While the central bank predicts the low base effect will quicken inflation in mid-year before its decline resumes, the slowdown is heaping pressure on policy makers to restart monetary easing.

“The effect of the ruble’s recent weakness is waning,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said before the data release. “Economic activity and consumers’ purchasing power are so weak that their price sensitivity impedes significant cost increases.”

The ruble has gained 6.3 percent this year against the dollar, the third-best performer among 24 emerging-market currencies tracked by Bloomberg. Forward-rate agreements are signaling 38 basis points in rate cuts during the next three months.

While price growth has slowed for seven months, it’s still far above the central bank’s medium-term target of 4 percent, with policy makers saying “risks remain” that the rate may exceed their goal in late 2017. The Bank of Russia kept its benchmark at 11 percent last month for a fifth meeting and warned that its “moderately tight” policy may last longer than previously planned.

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