Russian January Inflation Tops Forecasts to Reach 7.1%

Russian consumer prices rose more than economists estimated in January, advancing at the fastest rate in 15 months and bolstering the central bank’s case to resist government calls for lower borrowing costs.

The inflation rate was 7.1 percent, jumping from 6.6 percent the previous month, the Federal Statistics Service in Moscow said today in an e-mailed statement. The median estimate of 21 economists in a Bloomberg survey was 6.9 percent. Prices rose 1 percent from the previous month, topping estimates of a 0.8 percent advance.

Russia, the biggest emerging economy to raise interest rates last year, is seeking to cap inflation at 5 percent to 6 percent in 2013. President Vladimir Putin and members of Prime Minister Dmitry Medvedev’s government have said borrowing costs should be lowered to boost an economy that grew last year at the slowest pace since a 2009 recession.

“The January data may support the central bank in its dispute with the government that it’s too soon to ease monetary policy,” Alexander Morozov, chief economist for Russia at HSBC Holdings Plc. in Moscow, said by phone today. “I expect the central bank to lower interest rates only at the beginning of the fourth quarter, when inflation drops within the target range of 6 percent.”

Ruble Gains

The ruble is the third-best performer over the last three months among more than 20 emerging-market currencies tracked by Bloomberg, strengthening 5.4 percent against the dollar. It gained 0.24 percent to 30.0150 a dollar as of 7:12 p.m. in Moscow.

In the first half of the year, inflation is “very likely to exceed the target range,” the central bank said in its monetary-policy report for January, published today on its website.

Food prices advanced 8.6 percent in January from a year earlier, or by 7.2 percent excluding alcohol, the service said. Alcohol prices advanced 16.4 percent compared with a year ago after higher duties kicked in, according to the report. Food and vegetable costs jumped 16.1 percent.

“Food inflation remains a problem,” Julia Tsepliaeva, chief economist at the Russian unit of BNP Paribas SA, wrote in an e-mailed note today. Government plans to increase grain sales next week will have a “lagged and limited effect” on price pressure, according to Tsepliaeva.

Main Concern

Inflation is the main concern for the majority of Russians along with the poor state of housing and public utilities, according to a poll published Jan. 31 by the state-run All-Russian Center for the Study of Public Opinion.

Consumer-price growth slowed to a post-Soviet low of 3.6 percent in April and May of last year after the government pushed back increases in utility tariffs by six months before elections that returned Putin to the Kremlin for a third term.

Russia may be able to curb inflation to 3 percent to 4 percent by 2018, Finance Minister Anton Siluanov said yesterday. Still, the economy needs “easier money” and the government is locked in a “huge argument” with the central bank over interest rates, according to First Deputy Prime Minister Igor Shuvalov.

‘Persuade Them’

“We’re trying to persuade them, always, that now they need to reduce the rate,” Shuvalov said in a Jan. 18 interview. “And they say, not yet. We think they could.”

The growth of borrowing costs “raises concerns,” Putin said Jan. 31. December’s inflation rate was “very low,” especially when compared with an average 12.75 percent in 2000-2010, he said Jan. 16.

The economy expanded 3.4 percent last year, compared with 4.3 percent in 2011, data released last week showed. The government is targeting “steady economic growth” of 5 percent or more a year. Gross domestic product will increase 3.6 percent in 2013, the Economy Ministry predicts.

Central bank Chairman Sergey Ignatiev, whose third and final term ends in June, said consumer-price growth may slow to 4 percent in the coming years if the government follows the so-called budget rule, under which spending will be capped based on long-term oil prices.

“Maybe not immediately, maybe with some time lag, but interest rates will decrease with lower inflation,” Ignatiev said Jan. 31.

After raising borrowing costs by a quarter-point in September, the central bank has kept the refinancing rate unchanged at 8.25 percent for four months. Bank Rossii is scheduled to discuss monetary policy on Feb. 12, having removed language calling interest rates adequate for “the nearest future” from last month’s statement.

Risks of exceeding the inflation target range of 5 percent to 6 percent this year and 4 percent to 5 percent for the next two years “are currently estimated as moderate,” the central bank said in its statement.

Before it's here, it's on the Bloomberg Terminal.