Russian Shoppers Get Inflation Respite as Ruble Effect Looms

  • Annual price growth at 9.8% last month, lowest since 2014
  • Renewed ruble weakness on oil drop limits room to cut rates

Russian inflation was the slowest last month since 2014, offering consumers a break from more than a year of double-digit price growth before the effects of renewed ruble weakness ripple through the recession-hit economy.

The consumer-price index declined to 9.8 percent from 12.9 percent in December, the year-on-year rate falling for a fifth month to the lowest since November 2014, the Federal Statistics Service in Moscow said Friday in a statement. The median of 22 forecasts in a Bloomberg survey was for 9.9 percent.

Russian monetary-policy makers, who seek to lower inflation to 4 percent in the medium term, have been navigating obstacles from international sanctions to the oil collapse dragging down the ruble. The surprises stalled their easing cycle, limiting the central bank’s ability to bolster an economy headed into a second year of recession. The Bank of Russia last week flagged the possibility of tightening if risks intensify.

“Even though the new effect from the ruble weakness will be manifested with a lag, the impact will be more prolonged,” Maria Pomelnikova at Raiffeisenbank JSC in Moscow said by phone Wednesday. “Most likely in these conditions, the interest rate will stay unchanged till the end of the year.”

Ruble Drop

The ruble has lost 4.6 percent against the dollar in the past month, the second-worst performance among 24 emerging-market currencies tracked by Bloomberg, as crude also fell about 4.6 percent.

The currency’s weakness in December and January will add 1.3 percentage points to price growth in the first quarter, according to a report by the central bank’s research and forecasting department. Inflation expectations rose to the highest in almost a year, according to a poll by inFOM for the monetary authority.

The currency’s weakness has raised concern among consumers, who battled a 55 percent slump in the ruble in 2014-15. Worries over high inflation increased among Russians last month, remaining the second-biggest concern after the state of the economy, according to a survey published in February by state polling company VTsIOM.

As a sign of the mounting fears, Russian retailers said last month they were running out of Apple Inc.’s iPhones as consumers rush to buy before the prices start reflecting the currency decline.

Rate Outlook

The Bank of Russia extended its easing pause last month, keeping its key rate at 11 percent for a fourth consecutive meeting. Policy makers said that there’s an increasing risk inflation may “deviate” from their 4 percent target in late 2017. The economy may contract more than earlier forecast this year and return to low growth in 2017, according to the central bank.

The benchmark interest rate may fall to 9 percent by the end of 2016, according to the median forecast in a Bloomberg survey.

“Fluctuations in the ruble will to a large extent determine the next moves in interest rates,” Liza Ermolenko, a London-based analyst at Capital Economics Ltd., said in an e-mailed report. “Given the backdrop of high inflation, as well as tighter fiscal and monetary policy, we now expect the Russian economy to stay in recession for another year.”

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