Russian October Inflation Unexpectedly Quickens to 6.3%

Russian consumer-price growth unexpectedly accelerated in October, strengthening the case for the central bank to refrain from cutting borrowing costs for the first time in more than a year.

The cost of living rose 6.3 percent from a year earlier, leaving it above the central bank’s target range for a 14th month, after a 6.1 percent increase in September, the Federal Statistics Service in Moscow said today in an e-mailed statement. Economists forecast the rate will remain unchanged, according to the median of 22 estimates in a Bloomberg survey. Prices advanced 0.6 percent on the month.

Policy makers led by Elvira Nabiullina, who took over as central bank chairman in June, are struggling to contain inflation within this year’s target range of 5 percent to 6 percent after missing their goal last year. The regulator has kept interest rates unchanged since September 2012 even as the economy sputters amid its worst slowdown in four years.

“Headline inflation will now likely miss the 5-6 percent target this year,” Tatiana Orlova, senior economist at Royal Bank of Scotland Group Plc in London, said by e-mail. “We still see headline inflation on a downward trend in the coming weeks, therefore hikes are not on the cards. However, easing now seems to be postponed at least until mid-2014.”

The ruble has depreciated 5.6 percent against the dollar since the start of the year, according to data compiled by Bloomberg. It extended gains after the inflation report and traded 0.6 percent higher at 32.3575 per dollar as of 4:50 p.m. in Moscow.

Inflation Expectations

The central bank forecasts inflation will slow to 5.8 percent or 5.9 percent by December, First Deputy Chairman Ksenia Yudaeva told lawmakers in Moscow on Oct. 23, according to Interfax. Still-elevated inflation expectations must come down, even as the pace of economic growth remains low, Nabiullina said Oct. 8.

The benchmark one-week auction rate, which the central bank may use to provide or absorb liquidity, will stay at 5.5 percent at a Nov. 8 meeting, according to all 24 analysts in a Bloomberg survey.

Inflation is one of the biggest concerns for Russians, along with housing and utilities, according to a poll published Sept. 18 by the state-run All-Russian Center for the Study of Public Opinion.

‘On Hold’

Last month’s inflation surprise “justifies keeping policy rate on hold in November,” Alexander Morozov, Moscow-based chief economist at HSBC Holdings Plc for Russia, the Commonwealth of Independent States and Baltic countries, said by e-mail. HSBC predicts Bank Rossii will cut rates by a quarter point in December and another 25 basis points in the first quarter, he added.

The forecast given by Yudaeva looks “fairly optimistic” under current conditions, according to Maria Pomelnikova, an analyst at ZAO Raiffeisenbank in Moscow. Rising prices for milk, eggs and fuel may still spur inflation, she said.

“That may be partially offset by the deceleration trend we’re seeing for inflation in non-food goods and services as economic growth slows,” Pomelnikova said by e-mail today before the release. “As a result, we expect inflation to slow further to 6 percent by the end of 2013.”

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