Russian Inflation Accelerates to Nine-Month High on Ruble

Russian March inflation was the fastest in nine months, driven by the ruble’s weakening amid the country’s worst standoff against the U.S. and the European Union since the end of the Cold War.

Consumer prices rose 6.9 percent from a year earlier after 6.2 percent advance in February, the Federal Statistics Service in Moscow said today in an e-mailed statement. The median estimate of 18 economists in a Bloomberg survey was 6.8 percent. Prices rose 1 percent on the month, compared with a median forecast of 0.9 percent.

The ruble weakened as tensions over Ukraine led to escalating sanctions from the U.S. and its allies. The currency’s losses make it more difficult for Russia’s central bank to meet its goal of keeping inflation at no more than 5 percent. Monetary-policy makers won’t lower borrowing costs until at least June, Chairman Elvira Nabiullina said April 2.

“The accelerating inflation is a result of the weakened ruble,” Vladimir Kolychev, chief economist for Russia at VTB Capital in Moscow, said by phone before the data release. “Part of this effect is already visible in rising food prices. We’ll see the first signs of the weakened ruble on non-food product prices.”

The ruble, which has lost 6.9 percent against the dollar this year, is the second-worst performer among 24 emerging-market currencies tracked by Bloomberg after Argentina’s peso. The Russian currency gained 0.6 percent today, trading at 35.2850 as of 6:51 p.m. in Moscow.

Food Costs

Food prices rose 8.4 percent in March from a year earlier, compared with 6.9 percent in February, the statistics office said. The cost of non-food products increased 4.6 percent after a 4.3 percent advance in February.

The ruble’s weakness “will likely remain in place in April” and may push inflation to 7 percent this month, Vladimir Osakovskiy, a Moscow-based chief economist at Bank of America Merrill Lynch, said in an e-mailed note today. The inflationary impact of a weak currency probably will start to fade and reverse starting in May, according to Osakovskiy.

Policy makers left their benchmark rate unchanged at a March 14 meeting after a surprise increase to 7 percent from 5.5 percent the previous week. They called the tightening a temporary measure to counter market turmoil sparked by the events in Ukraine.

High Risk

“We expect to be able to stabilize inflation by the second half of the year,” Nabiullina said at a banking conference in Moscow April 2. “Still, the risk of inflation exceeding the target level of 5 percent remains high.”

President Vladimir Putin’s move to annex the Crimean peninsula from Ukraine last month prompted sanctions by the U.S. and the EU. The restrictions threaten to stall economic growth, which unexpectedly accelerated in the forth quarter.

Russia is on the brink of a technical recession this quarter after gauges of manufacturing and services showed that seasonally adjusted output probably shrank between January and March for the first time since 2010, HSBC Holdings Plc said yesterday, citing data compiled by London-based Markit Economics.

The $2 trillion economy expanded 1.3 percent last year, the slowest pace since 2009, as domestic demand failed to make up for sagging investment. Growth may be “significantly” below 1 percent this, Deputy Economy Minister Andrey Klepach said at a conference in Moscow yesterday.

The decelerating economy will restrain consumer demand, slowing price increases, according to Kolychev. “We expect the central bank to cut rates only at the end of the third quarter, when it will see a clear trend of disinflation,” he said.

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