20/2/15: January Russian CPI hit 15%. Food Inflation at 21%

Russian consumer prices data for January posted CPI of 15% y/y, with food inflation at 21% and non-food inflation at 11%. Per Economy Ministry estimates, more than 4 percentage points in inflation came from Ruble devaluation, while Russian July 2014 counter-sanctions (food imports bans) accounted for just over 1 percentage points.

As predicted in this blog, most of the price increases due to counter-sanctions will have an impact this year, rather than in 2014, in part due to lags in contracts and supplies storage, but also due to crop outruns - 2014 crops were at near historical record, and simple arithmetic on this suggests that 2015 is likely to post lower production figures. Additional break on prices was provided by some larger retail stores committing to freezing prices on foodstuffs - a measure that is unlikely to hold in the longer run. To mitigate this, the Government imposed export duties on wheat, in force from February 2015 set at a minimum rate of EUR35 per ton. This is set to run through June 2015 and my expectation is that it will rise there after. Indirect (non-tariff) measures to cut exports of foodstuffs are operating across the food sector, primarily manifesting themselves via slower issuance of exports documentation and limiting availability of transport capacity.

This came at the time when the Federal Anti-Monopoly Service were carrying out inspections of Russian retailers to determine if there were cases of price gouging. The Service was instructed to carry out monitoring of prices in an attempt to cut back inflation. At the same time, many regional authorities have been issuing regulatory caps on profit margins for retailers, also aimed at cutting back prices, while falling short of direct price controls. Note: price controls do operate - for years now - in the Northern regions.

As reported by BOFIT, Prime Minister Medvedev singled out specific concerns about the cost of drugs and medical supplies, warning "last week that medicine prices could rise as much as 20%" in 2015. Also per BOFIT, "Health ministry price monitoring found that in January regulated prices of life-saving medicines were up 4% and other drugs 15%". In this area - a note to exporters to Russia - the Government is continuing to expand the list of drugs covered by direct price controls and is currently preparing a draft regulation to control prices for medical equipment.