Russia's Consumer Price Inflation (CPI) continued to accelerate, registering 3.8% year-on-year in November 2018, up from 3.5% y/y in October 2018, and gaining 1.3pp since 2.5% seen in July, according to a report by Rosstat statistics agency. The inflation reading in November came close to the Central Bank of Russia's (CBR) target rate of 4%.
Still, the inflation reading was slightly lower than the consensus expectation of 3.9% y/y of Reuters economist survey. The CBR commented on December 6 that although CPI has already accelerated to 3.9% by the end of November and is not expected to breach 4% in 2018.
In autumn price pressures from main commodities such as food and gasoline were in focus, as the CBR signalled it is ready to further tighten the monetary policy should price growth spin out of control.
Analysts surveyed by Vedomosti daily warn that recent weekly inflation data points to rather stable acceleration trend and estimated that should weekly inflation in December remain at above 0.2%, the annual inflation will breach the 4% target.
Previously the analysts believed that the CBR will maintain the key rate at 7.5% at the next board meeting on December 14, and will maintain the rate throughout 2019 to start cutting it again in 2020. But the accelerating inflation dynamics increase the likelihood of another rate hike.
"The rise in Russian inflation, to 3.8% y/y in November, from 3.5% y/y in October, was driven entirely by higher food inflation. As a result, while the central bank Board meeting next Friday will be a close call, we think policymakers will refrain from hiking rates again and keep rates unchanged instead," Capital Economics commented on December 6.
Previously in September as inflation already broke out of CBR's forecast of 2.8-3%, and sanction pressure provoked volatility and pressure on Russian assets, the CBR surprised analysts by front-loading the monetary policy rate with preventive 25bp hike to 7.5%.
The regulator then maintained the rate flat in October commenting that actions taken in September have stabilised the domestic financial market and calmed ruble volatility. However, the CBR in the accompanying press-release warned that "inflationary risks remain elevated, especially in the short-term" and that "uncertainty remains concerning further developments of external conditions."
In these conditions the CBR left the possible rate hike on the table, saying that moving forward, it will "assess the practicability of increasing the key rate, taking into consideration the dynamics of inflation and economic growth, as well as external risks and financial markets' reaction to them."