Russian Inflation Decelerates More Than Forecast to 13-Month Low

Russia’s inflation rate fell more than analysts forecast to the lowest level in 13 months, stoking a debate over the central bank’s reluctance to lower interest rates in the face of the worst economic slowdown since 2009.

Consumer prices increased 6.1 percent from a year earlier in September, compared with 6.5 percent in August, the Federal Statistics Service in Moscow said in an e-mailed statement today. That was below the median estimate of 6.2 percent in a Bloomberg survey of 14 economists. Prices rose 0.2 percent in the month after a 0.1 percent increase in August.

Policy makers led by Chairman Elvira Nabiullina have pointed to heightened inflation expectations in holding interest rates for a year, as their counterparts from Mexico to Hungary opted for stimulus to aid slumping economies. While price growth has exceeded the 6 percent top end of this year’s target range for 13 months, Russia may hold inflation below 5 percent next year, President Vladimir Putin said Oct. 2.

“I definitely think that the sluggish growth performance and easing inflation warrant rate cuts,” Sanna Kurronen, an economist at Danske Bank A/S in Helsinki, said by e-mail today before the data release. “I expect the first cut in November, and 75-100 basis-point cuts in total during the next three quarters.”

The ruble, which has weakened about 5 percent this year against the dollar, traded little changed at 32.1525 per U.S. currency at 3:25 p.m. in Moscow.

Target Raised

The central bank last week increased its 2014 target for consumer-price growth by a half point to 5 percent, saying a government plan to allow partial increases in fixed costs for consumers necessitated the revision. Targets for 2015 and 2016 were maintained at at 4.5 percent and 4 percent, respectively.

Reaching the earlier target under the new tariff plan would require tightening monetary policy, raising risks for growth, the central bank said.

Economists projected the central bank would cut its key one-week rate, at which it offers auctions to provide or absorb liquidity, by a half-point in the fourth quarter to 5 percent, according to the median estimate of 18 economists in a Bloomberg survey, released Sept. 26. The single policy rate, introduced by the central bank at a Sept. 13 meeting, was set at 5.5 percent.

Core inflation, which excludes volatile costs such as energy, advanced 0.7 percent from a month earlier in September, remaining unchanged at 5.5 percent on an annual basis. Economists forecast a 0.5 percent monthly increase and a drop to 5.3 percent from a year earlier, according to the median estimates in two separate Bloomberg polls.

“The pace of economic growth is obviously slowing, there’s no denying that,” central bank First Deputy Chairman Ksenia Yudaeva said in an interview in Moscow on Oct. 1. “Inflation, including core inflation, isn’t slowing quickly, and while seasonally adjusted unemployment has increased slightly in recent months, it remains fairly low.”

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