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Russian Inflation Accelerates in January Despite Rate Hikes

Russian Inflation Accelerates in January Despite Rate Hikes

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Inflation in Russia sped up early this year, even after ten months of monetary tightening from the central bank took its key rate to the highest level since 2017.

Consumer prices rose 0.56% in the period Jan. 1-10, up from 0.26% in the week ending Dec. 27, 2021, the Federal Statistics Service reported late Wednesday. The agency cited higher service prices, especially fares for public transit, and increased food costs as contributing to the increase. 

On an annual basis, inflation rose to 8.6% in early January, the Economy Ministry said.

Price growth inflation in December was 8.4%, more than double the central bank’s target. Prices for food, construction materials and cars drove the increases last month, according to the statistics agency.

Russian Inflation Accelerates in January Despite Rate Hikes

“Issues with deliveries and production and new virus variants are pushing producers to raise prices that they delayed earlier,” said Sofya Donets, an economist at Renaissance Capital in Moscow. “Inflation may reach 8.8% in January-February, giving reasons to the central bank to raise rates again.”

Bank of Russia Governor Elvira Nabiullina said that more key-rate increases might be needed to curb price growth even after December’s 100 basis-point increase. Nabiullina has been among the most aggressive among emerging-markets central bankers in raising rates to combat inflation.

What Our Economists Say: 

“Russia’s inflation spike isn’t over. Base effects favor acceleration in January, but price pressure also remains elevated, and that will keep the central bank leaning toward another rate hike.”

--Scott Johnson, Bloomberg Economics

“Prices keep on surprising, there is no stability yet,” Evgeny Koshelev, an analyst at Rosbank in Moscow, said before the data release. “There is still space for the central bank to raise the interest rates more, but the intrigue remains about the size of the hike.”

Policy makers may consider another hike of as much as 100 basis points in February again, said Dmitry Polevoy, an analyst at Locko-Invest. Retailers may take advantage of the New Year to raise prices, he said.  

©2022 Bloomberg L.P.