Russian Inflation Holds Steady as Trend Seen Reversing in 2018

(Bloomberg) -- The slowdown in Russian inflation stalled for the first time in six months as the impact of a stronger currency and cheaper food from a good harvest started to wear off.

Price growth was 2.5 percent in December compared to a year earlier, the same as in the previous month, Russia’s Federal Statistics Service said Friday, citing preliminary estimates. That was below the 2.6 percent median estimate of 15 economists surveyed by Bloomberg. Inflation gained 0.4 percent in the month.

The Bank of Russia is gradually easing interest rates as it moves from a “moderately tight” to a “neutral” stance after inflation reached the regulator’s 4 percent target and decelerated further. While Russia’s economic prospects are improving as oil prices have rebounded amid an international agreement to maintain production cuts to the end of 2018, the recovery remains spotty after the longest recession this century. Policy makers expect inflation to rise close to four percent next year as temporary factors fade.

“Inflation may be a bit lower in January, but starting from February we expect acceleration,” said Tatiana Evdokimova, chief economist for Russia at Nordea Bank. “Inflation may reach 3 percent in June and get to 3.5 percent by the end of next year.”

Inflation will approach the target next year, though “it’s unlikely to exceed that level in the absence of strong negative shocks,” according to a report by the Gaidar Institute and the Russian Presidential Academy of National Economy and Public Administration. “In this situation, a faster shift from moderately tight to neutral monetary policy seems quite justified.”

The Bank of Russia lowered borrowing costs earlier this month to 7.75 percent, having started the year with the key rate at 10 percent.

The ruble gained 6.2 percent against the dollar this year, while oil prices increased by 17 percent in the same period.

©2017 Bloomberg L.P.