Inflation gradually returns to 4%

Inflation remains low. However, mostly due to the impact of one-off factors, its path over past months has proved higher than expected. These are findings by the authors of the new issue of Talking Trends, the BoR Research and Forecasting Department’s bulletin.

Monthly price growth has recently held at levels above those consistent with 4% inflation. This came as a result of multiple one-off factors, including a normalisation of food price movements and a weaker ruble's effect on prices. Also, a slight acceleration was seen across growth rates of the most stable components of the consumer price index, which are only slightly exposed to the impact of one-off factors. However, these growth rates are still below the level corresponding to 4%. This suggests that overall inflationary pressure, adjusted for one-off effects, remains low.

The medium-term risks of inflation deviating upwards from 4% still prevail. In particular, it seems highly probable that the slated VAT base rate increase to 20% will trigger a temporary acceleration in inflation to a level above 4% in the course of 2019. The Bank of Russia’s policy fosters reduced inflation risks and helps anchor inflation at a level close to 4% over the forecast horizon.

Volatility in Russian financial markets rose to a level compared with other emerging market economies confronted with capital outflow and a slide in financial asset prices.

Russian economic growth over the last few months has matched its potential, the bulletin authors note.

The views and recommendations expressed in the bulletin do not necessarily reflect the official position of the Bank of Russia.

7 September 2018

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