Russian CPI registers sharp drop in February, ruble higher

The cost of living in Russia fell sharply last month as the impact of the 2014 crisis in the country’s currency continued to be washed out of the system, possibly eliminating the need for further central bank interest rate hikes.

Russia’s consumer price index fell back to a 8.1% year-on-year pace in February, down from the prior month’s advance of 9.8% (consensus: 8.5%).

Nonetheless, CPI remained within the Russian monetary authority’s own forecast range of between 8-8.5%.

The ‘core’ rate of inflation, which strips out the typically more volatile categories such as food and oil, decreased from a 10.7% year-on-year clip to 8.9% - the lowest rate in over a year.

Food price inflation fell from 9.2% in January to 6.4%, that in non-food goods from 10.9% to 9.5% and for the service sector from 9.0% to 8.5%.

Friday’s price data came alongside figures released recently by the monetary authority in Moscow revealing that inflation expectations had edged lower and 4% appreciation in the ruble’s value versus the US dollar, Liza Ermolenko, emerging markets economist at Capital Economics, said in a research report sent to clients.

“All of this means that the rate hikes, which the CBR hinted at during the last MPC meeting in January, are now off the cards,” Ermolenko added.

Nonetheless, policymakers would retain an extremely cautious stance, with Central Bank of Russia rate-setters having highlighted that risks to the outlook for inflation in the Russian Federation were still large.

Furthermore, CBR was forecasting CPI would rise again towards the middle of the year.

“As a result, we think that interest rate cuts are only likely to come towards the end of the year and will probably be modest,” the economist added.

As of 14:39 the US dollar was retreating 0.68% to 72.5794 versus the ruble.