Russian Retail - Food Inflation Outlook

The food inflation pattern this year is shaping up to resemble what we saw in 2015. This is because the ruble depreciation is comparable. But this time around, it will likely be exacerbated by supply chain disruptions, which will likely require 3-4 months to be resolved - and some goods may nevertheless disappear from the market. We are looking for close to 25% peak level food CPI, a level that may be reached in the next couple of months. It should be uneven among products, with smaller increases on socially important local goods and a massive spike in those from logistically difficult regions. This will also spill over to global food prices. Wheat prices have already surged by 42% in the EU amid uncertainty over export volumes from both Russia and Ukraine this year. Food inflation has experienced two peaks over the last 20 years - in 2008 and 2015. In both years, the average came to 19.1% y-o-y, while the monthly spikes in both cases exceeded 22%.There is a link between the FX rate and the food CPI. Inflation peaked amid dollar appreciation by 28% versus the ruble in 2008 and 59% in 2015. The dollar is up 56% YTD on the ruble.Food imports stood at $9.5 bln in 4Q21, below the $10.4 bln in 2Q14. However, accounting for dollar appreciation, Russian imports from non-CIS countries (including Ukraine) were 11.0% of total food retail in 2Q14, which dropped to 9.4% in 2Q15 but rose to 10.8% in 4Q21.