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Russia inflation in June higher than officials expected

Russia inflation in June higher than officials expected

MOSCOW: Consumer inflation in Russia unexpectedly accelerated in June, data showed on Thursday, challenging the central bank’s aim of bringing inflation to a post-Soviet low of 4 percent this year. The consumer price index (CPI) showed prices rose 4.4 percent in June in year-on-year terms, above analysts’ expectations for a rise of 4.1 percent in a Reuters poll. Annual inflation, which picked up from 4.1 percent in May, was mostly driven by higher food prices, data from the statistics service showed, as Russia’s harvest was dented by unusually cold weather.

Food prices rose 1 percent on the year in June compared with just a 0.1 percent increase in the same month a year ago. “That appears to be due to fruit and vegetable inflation,” Capital Economics research firm said. Inflation, which stood at 0.6 percent in monthly terms, also exceeded expectations of the economy ministry that forecast prices would grow by 4.0-4.1 percent in year-on-year terms and by 0.3-0.4 percent in month-on-month terms. The head of the central bank’s monetary policy department, Igor Dmitriev, said the June inflation reading became a “negative surprise”. Dmitriev, however, said it was too early to say if higher inflation boosts chances that the central bank would avoid cutting rates at its next policy meeting in late July. The central bank is closely watching developments around consumer prices, saying its number one goal for this year is to bring and stabilise inflation at 4 percent. Despite the latest pick up in pace of prices growth, the central bank may still reach its 2017 target as core inflation, which does not include prices for food and fuel as well as utility tariffs, slowed to 3.5 percent in June, analysts say.

Russian central bank could still trim the key rate by 25 basis points from its current level of 9 percent at its next board meeting, said Dmitry Polevoy, chief economist at ING Bank in Moscow. “Its actual reaction will mostly depend on to what extent the rise in food prices and the recent rouble weakness feeds through to households’ inflation expectations,” Polevoy said, referring to the central bank.