Russia’s inflation shrugged off spiking fuel prices to turn in another month of low and stable inflation. Russia's consumer price inflation came in at 0.4% month-on-month in May, flat compared to April, with year-on-year inflation remaining at 2.4%, according to the report by Rosstat statistics agency.

Inflation remained stable despite the much-feared hike in gasoline fuel costs that are up 5.6% m/m on the back of the recent rise in crude prices, prompting discussions of the need to cap fuel inflation.

"A breakdown shows that half of the monthly inflation (0.2pp), as well as almost 0.7pp of the 0.9% m/m increase in non-food prices, owed to gasoline prices, which rose 5.6% m/m in May," Sberbank CIB noted on June 6, estimating that adjusted for gasoline, inflation decelerated to 2.2% y/y in May.

VTB Capital commented that the inflation report for May showed two major opposing developments in consumer prices, with an anomalous lack of the pre-harvest pick up in fruit and vegetables prices on the one hand, partly offsetting  the increase in gasoline prices and its second round effects on the other.

Food prices declined 0.1% m/m in May, with y/y growth slowing to 0.4% from 1.1% in April. The deflation was caused by fruit and vegetable prices, which declined 1.3% m/m. The government has also lent on the fuel producers to artificially hold prices back.

"Taking into account that the government has reached an agreement with major oil producers on retail gasoline prices (the producers agreed not to increase gasoline prices in exchange for a decrease in excise taxes), it is likely that there will be no major upward pressure on headline inflation from gasoline in the coming months," Sberbank believes.

Sberbank expects continuing deflation in food to lead to "quite significant disinflation in June", which would increase the risk that inflation will finish this year below the bank's forecast of 3.2% and thus below the Central Bank of Russia (CBR) target of 4%.