Russian Inflation Slows More Than Estimated to Six-Month Low

Russian inflation slowed from a 21-month high after food costs eased as policy makers wait for a sustained decline in price growth to cut interest rates.

Consumer prices grew 6.9 percent in June, the slowest this year on an annual basis, compared with 7.4 percent in May, the Federal Statistics Service in Moscow said by e-mail today. Economists forecast a slowdown to 7 percent, according to the median of 23 estimates in a Bloomberg survey.

Central bank Chairman Elvira Nabiullina is preparing to lead her first meeting on interest rates by the middle of July amid calls from the government for easing to stimulate lending as the economy slows. Policy makers have held their main rates since a quarter-point increase in September as inflation exceeded the top end of this year’s target range.

The reading “opens avenues for monetary easing,” Julia Tsepliaeva, head of research at BNP Paribas SA in Moscow, said by e-mail. “In July, the government hikes tariffs, which could fuel inflation in month-on-month terms, but CPI is very likely to remain at a decelerated trend” from a year earlier.

Consumer prices advanced 0.4 percent in the month, the statistics service said. Economists forecast a 0.5 percent increase, according to the median of 19 estimates in a Bloomberg survey. Core inflation, which strips out volatile costs including fuel and some food items, advanced 0.3 percent in the month, unchanged from May.

Food Prices

Food prices advanced 8 percent from a year earlier, down from 9.2 percent in May, according to the service. That was also the slowest pace this year, according to data compiled by Bloomberg.

The ruble appreciated 0.2 percent against the basket to 37.5217 by 6 p.m. in Moscow, when Bank Rossii stops its trading operations on the market. The currency strengthened 0.6 percent against the euro to 42.8300 and weakened 0.2 percent against the dollar to 33.1830.

The three-month MosPrime rate, which large Moscow banks charge each other, may decline 25 basis points, or 0.25 percentage point, in the next three months, according to forward-rate agreements tracked by Bloomberg.

“We can expect the emergence of a downward trend,” Tatiana Orlova, a strategist at Royal Bank of Scotland Group Plc in London, said by e-mail before the release.

Analysts forecast the central bank will cut the overnight and one-week repurchase rates, the main tools used to provide banks with cash, by a quarter point in the third quarter and the fourth quarter before going on hold for 2014, according to a Bloomberg survey last week.

Economy Slows

Russia’s gross domestic product growth slowed to 1.6 percent in the first quarter, the weakest since the economy pulled out of a 2009 recession.

Inflation may slow to within Bank Rossii’s target range of 5 percent to 6 percent in September or October, central bank Chairman Sergey Ignatiev told reporters last month before his term ended. Policy makers missed that target last year, with consumer prices advancing 6.6 percent.

Nabiullina’s priority at her first rate meeting will be to establish her anti-inflation credibility and distance herself from the Kremlin, Dmitry Polevoy, chief economist for Russia at ING Groep NV in Moscow, said in an e-mailed note.

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