Russian consumer inflation drops below 4% target for first time in a year

(Reuters) – Annual inflation in Russia dropped below the central bank‘s 4% target in March for the first time in a year, as the base effect of last year’s double-digit price rises takes hold, data from the state statistics service Rosstat showed on Wednesday.

Inflation soared to almost 20% soon after Russia sent tens of thousands of troops into Ukraine last year. The central bank has said inflation remains an area of concern, though it expects it to move back above the target later this year, likely ending 2023 in the 5%-7% range.

In March, annual inflation stood at 3.51% year-on-year, down from 10.99% year-on-year a month earlier, the data showed. Analysts polled by Reuters had expected a slowdown to 3.4%.

On a monthly basis, the consumer price index (CPI) rose 0.37% in March after a 0.46% increase in February, the data showed, coming above analysts expectations of a 0.2% rise.

The month-on-month rise of 0.37% in March equates to around 4.3% at a seasonally adjusted annual rate, said CentroCreditBank economist Evgeny Suvorov.

“That is a lot,” Suvorov said. “Such figures (and also the strong decline of the rouble) may lead to the central bank raising rates at the April 28 meeting.”

Central Bank Governor Elvira Nabiullina on Wednesday said the rouble, which eased inflationary pressure by strengthening last year, was more likely to have a pro-inflationary impact this year. The currency has lost almost 25% since an oil price cap on Russian exports came into force in early December.

Dmitry Polevoy, head of investment at Locko-Invest, said the central bank was unlikely to change its hawkish signal and would maintain concerns about inflation risks.

“But if (the risks) have decreased slightly from the budget side, then from the demand and exchange rate side, they have increased,” Polevoy said. “Therefore, it seems the central bank will for now continue to see more chances of a rate hike than a rate cut.”

Separate Rosstat data released on Wednesday showed consumer prices rose 0.11% in the week to April 10, compared with a 0.13% rise the previous week. Since the start of the year, prices have risen 1.84%, Rosstat said, a slower pace than in the same period of 2022.

Analysts polled by Reuters believe above-target inflation will prevent the central bank from trimming its key rate this year, squeezing growth prospects.

Russian households regularly cite inflation as a key concern, with many having no savings after a decade of economic crises while rising prices dragged living standards down across the country.

Rosstat gave the following details:

RUSSIAN CPI March 23 Feb 23 March 22

Mth/mth pct change +0.37 +0.46 +7.61

– food +0.13 +0.79 +6.73

– non-food +0.14 -0.08 +11.25

– services +0.97 +0.72 +3.99

Y/Y pct change +3.51 +10.99 +16.69

Core CPI y/y pct change +3.72 +12.69 +18.69

(Reporting by Darya Korsunskaya and Alexander Marrow; Editing by Jon Boyle)