In October Russia’s consumer price inflation (CPI) rate fell below Central Bank of Russia (CBR) target of 4% to 3.8% year-on-year, Rosstat reported on October 7.

Seasonality pushed food prices higher. The reversal in the inflation trend – last month consumer prices showed the first increase after two months of deflation – was expected given the seasonal change in fresh food dynamic: prices in this category rose by 0.4% m/m in October after posting large declines over the previous four months.

Overall, last month, food became more expensive by 4.3% y/y while prices of non-food consumer goods increased by 3.2% y/y and the cost of services to the population rose by 3.8% y/y. Gasoline, historically another big driver of inflation, had only a constrained effect on CPI growth as prices rose by just 1.9% y/y.

The inflation outlook might be insufficient for the CBR to ease again at the last meeting this year slated for December. The slowdown is not surprising, given the persistent weakness in the economy, a good harvest and the base factor effect.

“On our estimates, the CPI rate will decelerate rapidly over the next 2-3 months. By YE19, we expect it to fall to 3.4-3.5% y/y and on to 2.9-3% y/y in January-February 2020. However, deceleration in price growth could end in 2Q20 when the base factor starts to reverse as the effect from the VAT hike in 2019 starts to fade. We forecast the CPI rate at 3.2% y/y in mid-2020 and 3.8% y/y by YE20. The latter could mean that the scope for significant rate cuts for CBR could be limited – we expect the CBR in 2020 to cut its benchmark rate only by 25bp to 6.25%,” BCS Global Markets said in a note.