Russian May Inflation Quickened to Fastest Pace in 21 Months

Russian inflation accelerated for a second month in May to the fastest pace in 21 months, limiting the central bank’s scope to cut interest rates.

Consumer prices increased 7.4 percent in May from a year earlier after 7.2 percent, the Federal Statistics Service in Moscow said today by e-mail. The median forecast of 24 economists surveyed by Bloomberg was 7.3 percent. Prices rose 0.7 percent in the month.

Higher food costs are adding to price pressures as inflation remains more than a percentage point above the top end of the central bank’s 5 percent to 6 percent target range. That’s limiting policy makers’ ability to ease monetary conditions and boost an economy growing at the weakest pace since a 2009 contraction. Inflation remains a key consideration for policy makers, Sergey Ignatiev, the outgoing Bank Rossii chairman, said April 22.

“The cereal crop was bad last year, so prices rose for grains and breads, as well as for imported vegetables and fruits,” Alexey Devyatov, chief economist at UralSib Financial Corp. in Moscow, said by phone before the release. “The central bank may delay a rate cut.”

The ruble weakened 2 percent against the central bank’s target basket of dollars and euros in May. It traded 0.5 percent lower at 36.3661 at 6:56 p.m. in Moscow.

Food Costs

Food inflation accelerated to 9.2 percent in May from a year earlier, compared with 8.8 percent in April, according to the statement. Core inflation, which excludes volatile costs such as energy, was at 0.3 percent in the month, down from 0.4 percent in April.

Price growth remains one of the three main concerns for the majority of Russians alongside housing and utilities and low quality of life, according to a poll published May 14 by the state-run All-Russian Center for the Study of Public Opinion.

“Inflation probably peaked in May,” Dmitry Polevoy, chief economist for Russia at ING Groep NV, said in an e-mail today, adding that he sees the rate at 5.8 percent to 5.9 percent by October.

Policy makers kept their main rates unchanged for an eighth month on May 15 and reduced by a quarter point the costs of some long-term loans, including those backed by gold and non-marketable assets.

Rate Meeting

The central bank will review borrowing costs June 10, according to a statement published today. It will be the last meeting headed by Ignatiev before Elvira Nabiullina, Putin’s economic aide, takes the helm at Bank Rossii.

The central bank may keep the refinancing rate unchanged at 8.25 percent at the next meeting, according to 18 of 25 economists surveyed by Bloomberg. Seven predict a quarter-point cut.

Russia’s economy grew 1.6 percent in the first three months from a year earlier, decelerating for a fifth quarter and missing the medium-term target of 5 percent set by Prime Minister Dmitry Medvedev. Economy Minister Andrei Belousov partially blamed high rates for the economic slowdown, saying in April that he didn’t rule out a risk of recession later this year without stimulus.

Ignatiev “will prefer to leave the central bank unblemished by accusations that he has yielded to government pressure to ease policy,” Ivan Tchakarov, chief economist for Russia at Renaissance Capital in Moscow, said in e-mail today.

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