WOOD Flash – Russia macro: inflation jumps to 5.2%, peak expected next month

Inflation rose to 5.2% yoy in January vs. 4.9% in the previous month – the highest increase in inflation since April 2019, after the VAT increase from 18 to 20%. Core inflation deteriorated, but still increased from 4.2% yoy to 4.5% yoy, and remaining closer to the CBR’s target overall. The increase, driven mainly by food-related volatility, was above our expectations, with food inflation rising from 6.6% yoy to 7.7% yoy. We keep our view that the underlying driver, the increase in fresh products (fruit and vegetables up 16.3% yoy, +4.5% on a monthly basis), is temporary. The services and non-food inflation moved at a much milder pace, with services increasing at 0.4% mom (2.7% yoy); while non-food inflation stood at 0.5% mom (4.8% yoy, up from 4.5% yoy). Traditionally, January is a month that sees high monthly inflation prints, as a result of the indexation of administrative tariffs at the beginning of the year. This time, we also had high inflation values in the last two months of 2020E. While, in February, we are likely to see a decline in the monthly pace of growth, we still see inflation moving gradually towards the 4% CBR target after March. However, the increase in the inflation base effect will remain with us for a year. Going forward, we increase our inflation estimate (aop) to 3.8% for 2021E.