Inflation to remain low in 2018

The slowdown of annual inflation in January to a record 2.2% is primarily related to low food price growth rates, price dynamics in the regulated segment, and the rather stable ruble exchange rate. At the same time, the latest issue of the informational and analytical commentary of the Bank of Russia ‘Consumer Price Dynamics’ reports that the anchoring of inflation at this low level is gaining stability due to permanent factors. According to the Bank of Russia’s forecast, annual inflation as of the end of 2018 will likely remain somewhat below 4%.

The annual food price growth rate set a historic low in January. Moreover, fruit and vegetable prices dropped below their levels registered a year ago. The dynamics of meat and dairy product prices significantly contributed to the slowing of food price growth.

The growth rate of non-food goods prices also reached its lowest value. The maximum slowdown was registered for growth in car prices. The fall in the annual growth rate of motor petrol prices also made a notable contribution.

The following regulatory measures also contributed to the slowing down of inflation in January: the absence of changes in alcohol excises; decreased or negative price growth rate of medical supplies, a number of which are regulated; and moderate dynamics of transport and utilities prices.

Inflation is slowing down in all eight federal districts and remains below 4%. In six of them, the consumer price growth rate was below the Russian average. Inflation was above the average level in only two federal districts: the Central Federal District (2.8%) and the North-Western Federal District (2.4%).

In the coming months, food prices will grow slowly amid stable exchange rate dynamics. Non-food goods and services price growth will remain subdued. According to the Bank of Russia's estimations, annual inflation will likely slow down temporarily in 2018 Q2.

The Bank of Russia expects that annual inflation will remain at a low level and will gradually return to 4%. This will be supported by both the exhaustion of the effect of temporary factors and increased internal demand as the Bank of Russia moves from a moderately tight to neutral monetary policy.