Bloomberg News

Russian Inflation Rate Declines to Lowest in Year on Food Costs

October 04, 2011

Oct. 4 (Bloomberg) -- Russia’s inflation rate fell to the lowest level in a year in September as food-price growth weakened and higher borrowing costs took hold.

Consumer prices rose 7.2 percent from a year earlier, in line with the median estimate of 14 economists in a Bloomberg survey, after an 8.2 percent increase a month earlier, the Federal Statistics Service said in an e-mailed statement today. Prices were unchanged from August. Economists predicted a monthly decline of 0.1 percent.

Inflation has slowed from 9.6 percent in May, equaling its highest in 18 months. A further easing in prices would help policy makers meet this year’s 7 percent inflation target, the slowest since the collapse of the Soviet Union in 1991. Bank Rossii said yesterday it aims to slow price gains to 4 percent to 5 percent in 2014.

“We expect inflation to be contained to 6.7 percent this year thanks to the good harvest and deflationary effects seen this summer,” Maria Pomelnikova, an analyst at Raiffeisenbank in Moscow, said yesterday by phone. “The slowdown in inflation was helped by tighter monetary policy, including a tightening of the interest-rate corridor.”

The central bank last month raised the deposit rate, which it uses to absorb rubles from the banking system, while lowering the repurchase rate that lenders use to borrow extra cash. The move “helps limit volatility of money market interest rates as risks arise of ruble-liquidity shortfalls in the banking system,” the regulator said Sept. 14.

Rate Increases

Policy makers raised the overnight auction-based deposit rate five times since December to 3.75 percent from 2.5 percent. The repurchase rate was raised twice, from 5 percent to 5.5 percent, before being reduced by a quarter-point last month. That narrowed the so-called interest-rate corridor in which market rates tend to fluctuate to 1.5 percentage points from 2.5 percentage points. The benchmark refinancing rate remained at 8.25 percent.

Food prices shrank 0.6 percent last month from August, the statistics service said.

Slower inflation has boosted consumer spending this year as real wages rise. Food retailers such as X5 Retail Group and OAO Magnit and manufacturers including OAO AvtoVAZ, the country’s largest carmaker, have benefited from a surge in domestic demand.

This year’s grain harvest may reach 93 million metric tons, 53 percent more than a year ago, when drought cut the crop to 60.9 million tons, Arkady Zlochevsky, president of the Russian Grain Union, told reporters yesterday in Moscow. About 25 million tons of grain may be exported, he said.

--With assistance from Zoya Shilova in Moscow. Editors: Paul Abelsky, Andrew Langley

-0- Oct/04/2011 11:42 GMT

-0- Oct/04/2011 12:00 GMT

To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net -0- Oct/04/2011 11:41 GMT


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