Russian consumer prices rose in February at the fastest pace in 18 months, adding to arguments for the central bank to leave interest rates unchanged longer.
Inflation accelerated to 7.3 percent from a year earlier after 7.1 percent in January, in line with the median forecast in a Bloomberg survey of 21 economists, the Federal Statistics Service in Moscow said today in an e-mailed statement. Prices rose 0.6 percent from the previous month, matching the median estimate in a second poll of 17 analysts.
Policy makers are contending with price growth breaching their 5 percent to 6 percent target range for a sixth month as economic growth stutters at less than half of the 5 percent pace that Prime Minister Dmitry Medvedev seeks for Russia. President Vladimir Putin said Jan. 31 borrowing costs “substantially” higher than inflation were a source of concern, weeks before the central bank kept rates unchanged for a fifth month.
“We have the effects of a bad crop, with food prices starting to rise earlier,” Vladimir Tikhomirov, chief economist at Moscow-based Otkritie Financial Corp., said by phone before data release. “Also there were high inflationary expectations in February.”
The ruble weakened 1.8 percent last month against the dollar, its worst performance since May. The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell three basis points to 186, according to JPMorgan Chase & Co. (JPM:US) indexes. The difference compares with 176 for debt of similarly-rated Mexico and 173 for Brazil.
Inflation is surging after the government raised costs for items including alcohol and transport. Price growth may remain above the bank’s target range in the first half and output remains near full capacity, the central bank said Feb. 12 in a statement accompanying its rate decision.
Food costs advanced 8.7 percent in February from a year earlier and alcohol prices rose 17.6 percent, according to the statistics service.
Bank Rossii Chairman Sergey Ignatiev, whose third and final term ends in June, said Feb. 15 that he “hopes” inflation will start to slow in the coming months and with slower price growth rate cuts are “possible.”
The central bank is forecast to cut rates 25 basis points in the third quarter, according to the median estimate of 17 analysts in a Bloomberg survey. Traders are betting on 18 basis points of reductions in September compared with little change by June, forward-rate agreements tracked by Bloomberg show.
Putin must name a candidate to replace Ignatiev, 65, three months before his term ends in June. Bank Rossii First Deputy Chairman Alexey Ulyukayev, former Finance Minister Alexei Kudrin and VTB24 President Mikhail Zadornov were among those being considered for the post, three officials with knowledge of the discussions said in January.
A majority of Russians ranked fast price growth alongside problems in housing and utilities as their main concern, according to a poll published Jan. 31 by the state-run All- Russian Center for the Study of Public Opinion.
February’s core inflation, which excludes volatile costs such as energy, slowed to 0.4 percent in the month from 0.5 percent in January, less than the 0.5 percent median forecast of 10 economists.
“Rate cuts are necessary in the current situation,” Vladimir Osakovskiy, chief economist at Bank of America Merill Lynch in Moscow, said by telephone yesterday. “Core inflation shows that inflationary pressure is low. We expect that with inflation slowing down in April or May, the central bank may start to cut rates.”
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