Rosstat reported that CPI grew 0.4% m/m in July, bringing the annualized inflation rate to 3.4% y/y.
The prime drivers for inflation were hikes in the cost of communal services (2.1% m/m) while the biggest deflationary factor were prices of fresh vegetables and fruit (-2.5% m/m).
Overall, last month, food became less expensive by 0.1% m/m, prices of non-food consumer goods increased by 0.3% m/m and the cost of services to the population rose by 1% m/m.
A rise in inflation in July was fully expected. However, it will be only in late-Aug/Sept when the strength of seasonal food deflation will determine the future price trend and the CBR’s ability to ease its monetary policy further.
The rate of seasonal food deflation will set the framework for CBR policy. In the first week of August, w/w inflation stood at zero, matching forecasts. If this trend continues through the end of the month, annualized CPI rate will rise to 3.7% y/y. However, the government and CBR expect to see an acceleration in seasonal deflation: the Economy Ministry forecasts that consumer prices could fall by 0.1-0.2% m/m in August. If this is the case, then with y/y inflation hovering at 3.5% y/y, the CBR will have room to cut its benchmark rate by 25-50bp.
“We doubt this will happen: we see inflation rising to 3.9-4% y/y in September-October, which could force the CBR to keep its rate unchanged at least until the end of the year,” BSC Global Markets chief economist Vladimir Tikhomirov said in a note.