Bank of Russia Calls June Inflation Jump a `Big Shock'

The jump in inflation to 4.4 percent annually in June was a “negative surprise,” a senior central bank official said, adding that the rate might not come down much in July.

“The shock in June was big,” Igor Dmitriev, head of the monetary policy department at the Bank of Russia, said at the lower house of parliament Thursday. “We had expected a rise in annual inflation because of vegetables and fruit,” he added. “It just happened a bit faster than we expected.”

Dmitriev said inflation had fallen faster than expected in recent months and the central bank is still calculating the impact the June figure will have on its trajectory for reaching its target of 4 percent at the end of the year. He said the rate could stay at June’s elevated level this month or slip to 4.3 percent as local potato production kicks in, reducing price pressures. 

Still, Dmitriev said he doesn’t expect the inflation rate to be much below 4 percent a year from now.

The June increase came after inflation held at 4.1 percent in April and May. Economists in a Bloomberg survey expected the June figure to come in at 4.2 percent. 

The jump was driven by a 4.8 percent increase in food prices, according to data from the Federal Statistics Service. The core inflation rate, which excludes volatile components like food, fell to 3.5 percent in June, below expectations of 3.7 percent and the lowest since at least 2003.

Following the release of the June inflation data and Dmitriev’s comments, the ruble erased its declines versus dollar.

“The upside surprise fully came from raw fruits and vegetables with core CPI surprising to the downside,” said Dmitry Polevoy, chief economist for Russia at ING Groep NV in Moscow. “We still think the Bank of Russia may cut by 25 basis points in July, however its reaction will depend on to what extent the rise in food prices feeds through to households’ inflation expectations.”

Dmitriev said it’s too early to reveal the monetary-policy options that will be considered at the Bank of Russia’s next rate-setting meeting July 28. The regulator has cut borrowing costs three times this year, most recently by 25 basis points to 9 percent in June.

— With assistance by Zoya Shilova

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