Russian Inflation Accelerates as Putin Bans Food Imports

Russian inflation accelerated in August after the government banned food imports from the U.S. and the European Union, remaining above target for a 24th month and bolstering the central bank’s case for tightening policy.

Consumer prices rose 7.6 percent in August from a year earlier after 7.5 percent in July, the Federal Statistics Service in Moscow said today in an e-mailed statement. The inflation rate increased 0.2 percent from a month earlier. They matched the median estimates in Bloomberg surveys of economists.

The central bank is set to miss its target of 5 percent inflation this year as ruble weakness spurred by sanctions from the U.S. and the European Union over Ukraine ignited consumer-price growth. Policy makers had raised the benchmark rate three times since February even before Russia retaliated with a ban on food imports in August, adding to earlier restrictions imposed by public health regulators.

“The acceleration is mainly due to the stronger-than-expected impact of the recent import bans,” Vladimir Osakovskiy, Bank of America Corp.’s chief economist for Russia, said by e-mail before the data were released. “We expect another precautionary 50 basis-point rate hike later in the year, but the likelihood of a move in September is rising and will depend on the future trajectory of inflation.”

The ruble, which has lost 11 percent against the dollar this year, is among the 10 worst-performing currencies of 176 tracked by Bloomberg.

Inflation Concerns

Inflation remains Russians’ biggest concern, followed by housing and utilities and corruption, according to a survey published Aug. 12 by the state-run All-Russia Center for the Study of Public Opinion, known as VTsIOM. According to a poll published Aug. 29 by the Public Opinion Foundation, 84 percent of Russians expect prices to continue rising.

Policy makers, laboring to slow inflation to a 4 percent target in the medium term, estimate consumer-price growth will decelerate to a range of 6 percent to 6.5 percent by the end of the year.

The central bank, led by Chairman Elvira Nabiullina unexpectedly raised the benchmark interest rate by 50 basis points to 8 percent on July 25. The key rate will continue to climb “if high inflation risks persist,” the central bank said at the time.

Intensified geopolitical tensions, affecting the ruble exchange rate, and potential changes in tax and tariff policy may increase inflation risks, according to the central bank’s July statement.

President Vladimir Putin’s retaliatory strike of banning some foods is adding pressure to prices. Last month Russia restricted imports of meat, fish, dairy, fruits and vegetables from the U.S., EU, Norway, Canada and Australia for one year.

Consumer-price growth “is likely to end 2014 not far from 8 percent, with risks that ‘moral suasion’ from the authorities delays the pass-through into retail prices to the first half of 2015,” Vladimir Kolychev and Daria Isakova, economists at VTB Capital in Moscow, said by e-mail Aug. 29.

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