Inflation not likely to exceed target in 2018

The Bank of Russia does not exclude that inflation will approach 4% in 2018 somewhat faster than expected. Among other things, this will depend on external factors and their impact on the ruble exchange rate as well as the adaptation of businesses to changing external conditions. At the same time, the risks of inflation exceeding the target are estimated as low, according to the latest issue of ‘Consumer Price Dynamics’, a BoR regular information and analytical commentary.

In March, a slight and expected increase in inflation was observed due to an earlier depletion of stocks of domestic vegetables vs. last year and the adjustment of passenger railway transportation fares. Inflation, however, remained at the low level due to the continuing trend of declining inflation expectations, conservative consumer behaviour, high consumer market saturation, and stable exchange rate dynamics in March. As before, the prices of cereals and pasta, meat products, sugar and eggs were lower than last year.

According to the Bank of Russia’s forecast, the inflation dynamics in Q2 and Q3 will depend on external drivers, among other things. The last-minute estimates demonstrate that the price growth during the week in April when the increased exchange rate volatility was observed remained subdued. In the absence of unfavourable changes in external conditions, the weakened ruble will not cause any negative influence on prices. The sensitivity of prices to exchange rate volatility has been declining lately. This is related, in particular, to higher import substitution and the localisation of production of certain goods (e.g., in car manufacturing and household appliances and electronics production markets). Overall, the events that have taken place may mean a somewhat faster than expected recovery of inflation to 4%.