Inflation remains high, prompting the CBR to hike the key rate

RUSSIA ECONOMICS - In Brief 03 Jun 2021 by Alexander Kudrin

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Rosstat reported that w-o-w inflation in the last seven days of May was at 0.12%, and cumulative inflation in May reached 0.61% m-o-m, which is a kind of a flash estimate. It is not yet the final official figure due to be published on June 7. Even though Rosstat now publishes inflation numbers with two decimal points, the final May inflation number might slightly differ from the flash estimate. M-o-m inflation remained relatively stable in May, but it looks as though y-o-y inflation accelerated to around 5.75% as the m-o-m inflation fell in May 2020 amid lockdown. Currently, inflation y-o-y appears a bit higher than was expected earlier, but it will start decelerating rapidly in 4Q21 due to a base effect. Inflation m-o-m remained elevated in May even though the ruble steadily appreciated in recent months, as the growth of imports gathered pace both m-o-m and y-o-y. Therefore, to some extent, Russia imported rising global inflation. In January, imports were up y-o-y by 2.1%, in February – by 13.3%, in March (latest available data) – by 25.0% y-o-y reaching $25.7 bn. It looks as though in April and May, imports were even higher due to rapidly growing consumer debt. In March and April, the consumer credit expanded by 2.0% m-o-m on average and reached almost R22 trln. As of June 1, the figure could be close to R22.5 trln, and as of July 1, it can surpass R23 trln. Consumer credit y-o-y was at 17.8% as of May 1.Such a rapid expansion of consumer credit doesn’t look sustainable, especially since lending interest rates are above 10% on average and are due to rise further in the aftermath of CBR’s series of rate hikes. The CBR may raise the key rate in June once again, thus mo...