Lower vegetable prices hold back inflation in October

Annual inflation rose from 3.4% in September to 3.5% in October. The movement is overall consistent with the inflation path in the Bank of Russia's baseline scenario, says the current issue of ‘Consumer Price Dynamics:  Facts, Assessments and Comments’, a Bank of Russia commentary.

While growing food prices are invariably the key contributor to mounting consumer prices, cheaper fruit and vegetables moved to hold down food inflation in October. The prices declined by 0.5% against last October.

Annual growth rates of non-food prices increased by 0.1 pp to 4.1%. These dynamics are mainly associated with this year's ruble depreciation and, probably, an outpacing price adjustment ahead of the VAT hike. The most significant rise in annual growth rates was seen in prices of consumer electronics (3.1% vs 2.4% in September) and medicines (2.9% vs 2.2%).

The Bank of Russia's baseline forecast makes provisions for this outrunning price correction. The forecast assumes 3.8-4.2% consumer price growth by the end of the year. Previous business surveys show that some business executives are planning to make price corrections as early as 2018 Q4. Bank of Russia estimates suggest a number of factors including tax policy will send inflation higher in 2019 H1. Moving forward, inflation will decline sustainably. The Bank of Russia forecasts annual inflation to be between 5.0% and 5.5% in 2019, returning to 4% in 2020.