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Russia successfully tackling inflation

Russia has done so well in vanquishing inflation that even the Bank of England might take notice.

While policy makers in London are under pressure to act after core inflation accelerated to the fastest since 2011, the same gauge probably reached a new historical low in Russia, falling below its level in the U.K. 

Data due this week will show Russia’s index of consumer prices that strips out volatile components such as food and energy slowed to an annual 2.6 percent in September from 3 percent a month earlier, according to the median of seven estimates in a Bloomberg survey. In the U.K., it jumped to 2.7 percent in August.

The bad news for Russia is that the outsized role of fruit and vegetable prices in shaping inflation expectations means the core index is of less value for the central bank. While food accounts for almost 40 percent of Russia’s consumer-price basket, it’s closer to 10 percent in developed economies such as the U.K.

“Food prices play a key role in setting inflation expectations, and there isn’t much use from core inflation,” said Vladimir Miklashevsky, senior economist at Danske Bank A/S in Helsinki. “It won’t have a big impact on the consumer and monetary policy, as the key indicators for the Bank of Russia are the consumer-price index and inflation expectations.”

Still, the historic deceleration in Russian inflation to less than a fifth its level two years ago -- and the even faster decline in the core index -- shows how much headway policy makers made in keeping price pressures in check as they maintain a “moderately tight” stance. On an annual basis, core inflation peaked at 17.5 percent in March 2015.


Publication date: 10/5/2017


 


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