After another week of falling CPI deflation in July is almost certain

RUSSIA ECONOMICS - In Brief 04 Aug 2022 by Alexander Kudrin

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Rosstat reported that in ten days ending August 1, the consumer price index fell by 0.14% w-o-w. The agency has split this number between the two months, and it appears that 0.13% was allocated to July and 0.01% to one day of August. On August 10, Rosstat will publish the official m-o-m inflation for July. The monthly index is calculated on a broader consumption basket than the one used for weekly flash estimates, and deflation of around 0.2% will likely be announced for July, i.e., the month when the authorities usually raise regulated tariffs. Note that in the preceding seven-day period, which ended on July 22, the authorities announced 0.08% MTD deflation. Hence the aforementioned estimate of the expected July deflation number. Though, it may still differ due to different baskets. Frood and vegetable prices began falling faster, and in August, one may expect another month of deflation, as the harvest this year looks good, and grain harvest will be around historical highs. Due to sanctions, Russia has difficulties exporting grain, as payment settlements are not as straightforward as they used to be, there is a lack of clarity on whether cargo ships can be insured, etc. Therefore, Russia’s deflation during the harvesting season looks very natural. On top of that, the ruble remains abnormally strong, consumer demand is still suppressed, and energy resources are abundant for domestic needs. Hence in mid-September, the CBR can make another decisive move and cut the key rate aggressively. Evgeny Gavrilenkov Alexander Kudrin