Russian Inflation Jump to Three-Month High Exceeds Estimates

Russian inflation accelerated more than economists forecast in November, quickening for a second month as the central bank and government conceded that price growth would exceed the target range for a second straight year.

Consumer prices rose 6.5 percent from a year earlier after a 6.3 percent increase in October, the Federal Statistics Service in Moscow said today in a statement. Economists predicted an increase of 6.4 percent, according to the median of 19 estimates in a Bloomberg survey. The rate has held above the target range of 5 percent to 6 percent for 15 months.

With inflation at the fastest in three months, central bank Chairman Elvira Nabiullina may remain reluctant to lower borrowing costs to stimulate the stalling economy. The Economy Ministry raised its forecast for 2013 inflation to 6.2 percent this week after Nabiullina’s first deputy, Ksenia Yudaeva, said non-monetary factors will bring it above this year’s target.

“The higher-than-expected CPI reading effectively prevents the central bank from any policy easing at its December policy meeting,” Vladimir Osakovskiy, chief economist for Russia at Bank of America Merrill Lynch in Moscow, said by e-mail. “At the same time, food-driven acceleration also prevents any thoughts about tightening.”

The ruble gained for a second day, with the currency strengthening 0.3 percent to 38.4457 against the central bank’s basket of dollars and euros as of 6:18 p.m. in Moscow. The yield on the January 2028 ruble bond fell two basis points, or 0.02 percentage point, to 8.16 percent.

Goal Change

Bank Rossii raised its 2014 inflation target in September after the government decided to allow partial increases in fixed costs for consumers. The regulator plans to hold price growth to 5 percent next year and cut the target by half a point in each of following two years.

Inflation may end the year at 6.3 percent to 6.5 percent, Andrei Belousov, a Kremlin aide and former economy minister, told reporters in Moscow today. December is an “unpredictable” month for inflation because of the holiday shopping season and planned payouts to state employees, which may lead to a wide possible range for price growth, he said.

Consumer prices rose 0.6 percent in November from a month earlier, the same pace as in October, the service said. Economists projected a deceleration to 0.4 percent, according to the median estimate of 17 economists in a Bloomberg survey. Core inflation, which strips out some volatile items such as fuel, advanced 5.6 percent from a year earlier.

Eggs, Dairy

Egg prices jumped 39.2 percent in November on an annual basis, while the cost of fruit and vegetables grew 8.9 percent from a year earlier and dairy products became 12.3 percent more expensive, according to the report.

“It’s clear that inflation will end 2013 above 6 percent, and the key issue now is how this will affect inflation expectations and the speed of inflation moderation in 2014,” Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, said before the release. “The central bank will stay on hold, awaiting a confirmation of the sustainability of a downward trend in inflation, which we expect to start in early 2014.”

Faster inflation has forced analysts to push back their forecasts for the start of Russia’s monetary easing cycle. Economists surveyed by Bloomberg last month projected the key rate will be cut a quarter point to 5.25 percent in the first quarter. A month earlier they predicted a quarter-point reduction in the fourth quarter as well.

Rate Expectations

The three-month MosPrime rate, which large Moscow banks say they charge one another, may drop 17 basis points, or 0.17 percentage point, in the next three months, according to forward-rate agreements tracked by Bloomberg. That’s down from as much as 56 basis points in August.

“While the Russian economy continues to weaken, CPI has found some new upside momentum in recent months and thus the central bank is not expected to adjust interest rates at its upcoming Dec. policy meeting,” Johannesburg-based Tradition Analytics said in an e-mailed research note. “The central bank has preserved a prudent stance due to the still relatively stubborn inflation environment.”

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