Belarus inflation in July remained flat compared to June at 5.2% year on year and 0.19% month on month, which remains close to the National Bank of Belarus' (NBB) target range, Belstat reported this week.
The acceleration in the prices of non-food products was offset by the slower growth in food and services.
Non-food price growth accelerated 0.4pp to 4.8% y/y. Almost all non-food categories shared this boost, with the exception of footwear and watches: household electric appliances rose by 7.0% y/y, kitchenware was up 3.4% y/y, furniture by 5.8% y/y and garments by 1.9% y/y.
These dynamics reflected the influence of:
Food price growth decelerated 0.2pp. to 4.6% y/y, led by the new harvest (the price of vegetables dropped 3.0% y/y). The evidence for this can be seen in the growth of agricultural production, at 3.7% y/y for 1H20 (2.3% y/y separately in June).
Despite the hike in utility tariffs, as well as the increased strong demand for medical services and flight tickets, services inflation declined slightly to 6.8% y/y in July, from 7.0% y/y in June. The main contribution to the deceleration was made by international railways (5.5% y/y), communications (2.1% y/y) and cultural services (5.4% y/y). The main factor behind the slowdown was demand constraint due to coronavirus (COVID-19).
The price of flight tickets rose significantly, 24.7% y/y, from 18.0% y/y a month ago, due to some countries opening their borders for tourists. Since air traffic in Russia was closed in July, many Russians flew on holiday to Turkey via Belarus.
This put additional pressure on the prices of flight tickets in Belarus and sanatoria in Russia.
Adjusted for seasonality, July’s CPI accelerated to 0.54%, from 0.34% in June. In particular, the food category rose to 0.51% m/m SA (+0.27% m/m SA month ago), non-food to 0.58% m/m SA (0.15%) and services to 0.4% m/m SA (0.54%) due to pent-up demand and the increase in regulated prices.
The NBB is due to announce its interest rate decision on 12 August. We believe that including July inflation will lead to a policy rate cut of 50bp.